- We reaffirm our BUY recommendation on Bonia Corporation (BON) with an unchanged fair value of RM4.50/share, pegged to a 10x PE over CY15F earnings. We came away from our recent corporate luncheon with a more positive and upbeat view on BON’s prospect as a regional upper mid-end retailer.

- We believe that BON’s growth in the next few years will be driven by rising sales volume in view of its strong brand recognition, compelling product range and increasing regional footprint. This is further helped by margin expansion, a consolidation exercise that was undertaken recently, and rapid expansion in the past few years.

- Key takeaways from the luncheon are as follows:- (1) Emerging markets, namely Indonesia and Vietnam, remain as its key growth areas. Although BON will be selective in its new boutique openings going forward, it continues to strengthen its brand recognition and expand aggressively into Indonesia given the market’s potential. Furthermore, BON is well positioned to capitalise on the recovery of Vietnam’s economy, underpinned by an extensive distribution network (17 boutiques and 28 counters).

(2) Braun Buffel’s growth will accelerate within the Asia Pacific region given its worldwide brand recognition. This is further supported by its healthy margins. Expansion will either be through company-owned boutiques, exports or licensing. Currently, BON exports Braun Buffel products to Indonesia and has given out a licence in China. The licensee owns more than 100 outlets in China.

(3) BON intends to accelerate boutique count (and moving away from counters), particularly for its premium brands, Bonia and Braun Buffel. Sales are expected to be boosted by a step-up of its dealership partnership programme (which is commissionbased). Stock loss is borne by the dealer.

(4) Potential tie-ups with established partners to enter new markets, particularly in Asia, for its in-house brands and Braun Buffel.

(5) Continuous efforts to improve quality and design, and widen its product range. A new product line for Braun Buffel is slated for launch by end of this year.

(6) The upcoming increased capacity at its new factory in Malacca should help reduce reliance on its factory in China. By extension, this could potentially result in cost savings given rising labour cost in China. Capacity of its two existing manufacturing facilities in Malacca is currently insufficient; these mainly manufacture Bonia bags and wallets.

- BON currently trades at an undemanding valuation of only 9x FY15F PE, considering its significant earnings expansion and a robust 3-year CAGR of 35%.

Source: AmeSecurities