Investment Highlights

• We maintain our HOLD recommendation on Bonia Corp with a lower fair value of RM0.66/share from RM0.69/share. Our fair value is derived after pegging a target P/E of 15.0x on its FY18F EPS, in line with the its 5- year historical average P/E. We believe Bonia’s fortunes are on the cusp of revival with the closure of most of its loss-making stores. However, broad regional retail sector-related headwinds continue to weigh on consumer spending.

• Although we expect Bonia to close more loss-making stores and at the same time, expand some 10 boutiques across Malaysia and Indonesia, SSSG and operating conditions are likely to remain under pressure in the near term. Accordingly, we trim our earnings forecast by 20% for FY18F.

• Bonia’s reported 3QFY17 earnings of RM4.8mil (YoY: +8.1%) brought 9MFY17 core earnings to RM21.1mil (YoY: +1.3%). The set of results missed both our and consensus estimates as it only accounted for 61% and 62% of the respective full-year earnings. Bonia’s 9M earnings historically made up 80-90% of its full year’s.

• No dividend was declared as expected.

• Revenue for the quarter contracted by 7.2% to RM151mil. This was due to a fall in SSSG across all of Bonia’s regional stores including Indonesia and Vietnam. The bright spot was Jeco Malaysia (Brain Buffel licence holder), which recorded a positive SSSG of 8%. The broadly weak SSSG, coupled with the closure of 206 stores YTD or 14% of total store count had resulted in Bonia’s cumulative 9M revenue declining by 9% YoY.

• The current quarter’s EBIT margin appeared to have reverted to the mean of 7-8%, which lent to the softerthan-expected 9MFY17 earnings. Recall that we had earlier upgraded our margin assumption based on the previous quarter’s outperformance.

• Lowering of its selling prices has had mixed results. Jeco doubled in earnings while the Bonia brand saw its PBT earnings wiped out (3QFY16: RM3.1mil). This contributed to the flattish 9MFY17 YoY growth of 1.3%. Going forward, we believe Bonia’s success lies heavily with its pricing strategy in a highly fluid environment amidst stiff competition and delicate spending patterns.

Source: AmInvest Research - 26 May 2017