Investment Highlights

• Bonia has proposed the demerger and subsequent listing of its wholly-owned subsidiary, CRG Incorporated S/B (CRG), on the LEAP Market of Bursa Securities.

• The ownership of CRG will reflect Bonia’s shareholding. Existing Bonia shareholders will own a similar stake in CRG in the LEAP Market, as they do in Bonia on the entitlement date. The entitlement date has yet to be determined.

• CRG is involved in the designing, manufacturing and retailing of the Carlo Rino and CR2 branded fashion products. In FY17, CRG contributed 15.5%, 8.8% and 15.0% to Bonia’s revenue, PBT and net assets respectively. In terms of boutique count, CR contributes to 24% of Bonia’s overall boutique count.

• Management’s rationale for the demerger and subsequent LEAP Market listing is to carve out a distinct entity in terms of market segment, business strategy and focus from Bonia. The intended objective is likely to position Bonia with greater visibility and coherence of earnings drivers.

• We anticipate that CRG may command lower valuations than Bonia seeing the LEAP Market is less liquid and has a lower pool of investable institutional investors, which effectively translate into demand. Should CRG command lower valuations than Bonia, it could be value destructive to existing Bonia shareholders in the near term.

• We are neutral over the development. While we appreciate greater visibility and coherence of Bonia earnings drivers excluding CRG over the longer term, it may be offset by the potential near-term restructuring drag.

• Maintain our BUY recommendation and fair value of RM0.67/share. Valuations are pegged to FY19 with a target P/E of 14.5x, in line with its 5-year historical average P/E. We continue to like Bonia’s flagship brands, Braun Buffel and Bonia and its turnaround-led growth. Meanwhile, valuations are attractive for a regional luxury brand going through an upcycle in consumer spending.

Source: AmInvest Research - 8 Feb 2018