Investment Highlights

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

• The board of Bonia approved the proposed distribution of Bonia’s entire shareholding in CRG by way of dividendin-specie on a pro-rata distribution to the entitled shareholders.

• Effectively, 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. To illustrate, a 5% stake owner in Bonia will own a 5% stake in both Bonia and CRG Group on entitlement date.

• While the value of CRG shares has yet to be determined, the upper limit on the dividend-in-specie is capped at RM48mil.

• We estimate, should the dividend-in-specie command anything less than RM40.6mil (historical P/E of 12.3x to FY17 EPS at Bonia’s last close of RM0.485/share), it would immediately be value destructive to existing shareholders.

• Management looks to complete the corporate exercise in the 3Q of 2018.

• We would also like to highlight that current shareholders find it attractive to sell their existing Bonia stakes to avoid obtaining potentially less liquid CRG shares in the LEAP Market. It could translate into share weakness leading up to the entitlement date.

• However, we reiterate the neutralilty of the corporate exercise over the longer term. Greater visibility and coherence of Bonia earnings drivers from the distinct Carlo Rino brand could offset the potential near-term restructuring value destruction.

• 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. Following the successful CRG restructuring, our FV would be adjusted to RM0.60/share in tandem with CRG’s contribution (~10%) to Bonia’s overall earnings.

• We continue to like Bonia’s flagship brands, Braun Buffel and Bonia, and its turnaround-led growth off a low base. Meanwhile, valuations are attractive for a regional luxury brand going through an upcycle in consumer spending.

Source: AmInvest Research - 16 Mar 2018