RAM Ratings raises outlook on AEON (M) issue rating to positive from stable

Published on 06 Oct 2023.

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RAM Ratings has revised the outlook on the AA2 rating of AEON Co (M) Bhd’s (AEON (M) or the Company) RM1 bil Islamic Commercial Papers/Islamic Medium-Term Notes Programme (2016/2031) to positive from stable. 

The revision is premised on our expectations that AEON (M)’s markedly stronger credit metrics will be sustained and can continue to improve in line with our anticipation that its business performance will keep on a recovery trajectory, supported by returning shopper traffic and the gradual restoration of optimum mall occupancy. The Company’s sturdier credit metrics were mainly driven by rapid deleveraging in the last two years.  

In FY Dec 2022, AEON (M)’s revenue and operating profit before depreciation, interest and tax (OPBDIT) moderately outperformed our projections, growing 14.1% and 2.7% y-o-y, respectively. The performance of both its retail and property management segments rebounded, thanks to better operating conditions and improved mall occupancies. For 1H FY Dec 2023, the contribution from occupancy and rental rate improvements led to overall topline growth of 2.0% y-o-y. 

While persistent inflationary pressures may weigh down AEON (M)’s business performance, initiatives like the rejuvenation of existing malls, digital transformation of operations, a stronger online presence and wider offering of higher-margin in-house product assortments are expected to help drive retail sales, retain mall occupancies and steadily improve the Company’s financial profile. The resumption of planned mall expansions within the next few years will also spur future growth, and underscore AEON (M)’s strong market position as Malaysia’s largest mall owner and a leading retail operator. 

The Company’s large, geographically diversified footprint enables it to generate strong funds from operations (FFO), which are more than sufficient to meet annual working capital and capital expenditure needs. Accordingly, we expect borrowing levels to remain relatively stable moving forward, even after considering mall expansions. As at end-June 2023, total borrowings (excluding lease liabilities) significantly eased to RM458.9 mil, approximately halved from pre-2021 levels. As a result, adjusted debt to OPBDIT and funds from operations debt coverage were a better 2.31 times and 0.39 times, respectively, on the same date (end-December 2022: 2.38 times and 0.38 times). We project these ratios to hover around 2.40 times-2.50 times and 0.40 times-0.42 times, respectively, over the next three years under our sensitised financial projections.

Notwithstanding the improved debt metrics, AEON (M)’s lease-adjusted gearing is still deemed moderately high, attributable to hefty lease commitments for malls and stores. Also moderating the ratings are keen competition in the retail industry and rapidly changing consumer preferences, which will affect the Company’s retail business. The abundant supply of retail space will also continually challenge the Company’s mall operations.

AEON (M) is deemed strategically important to its Japan-based parent, AEON Co. Ltd, as the latter’s largest revenue contributor in Southeast Asia. Given its stronger financial profile, we view the Company to be fairly independent of its parent. AEON (M) will continue leveraging on its parent’s experience and network to support its operations.


Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575

Thong Mun Wai
(603) 3385 2522

Media contact
Sakinah Arifin 
(603) 3385 2500


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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