- We reaffirm our BUY recommendation on Bonia Corporation (BON) with an unchanged fair value of RM5.40/share, pegged to 15x PE over CY14F earnings – at a premium to Padini Holdings’ (HOLD, FV: RM1.80/share) implied target PE of 12x.

- BON has proposed a 1-for-1 bonus share issue, followed by a 1-into-2 share split based on the number of shares post the bonus share issue.

- Upon completion of both exercises, BON’s number of shares would rise to 806.3mil (+300%) from 201.6mil currently.

- The proposals are conditional upon approvals by the relevant authorities and shareholders.

- The exercise is expected to be completed in 3QCY14.

- We view the corporate exercises as positive for the stock as trading liquidity would improve, underpinned by BON’s robust earnings trajectory (3-year EPS CAGR of 35%) and growing geographical presence.

- Upon completion, the share price is expected to be adjusted to RM1.23/share from RM4.90/share currently.

- This exercise has no impact on the group’s earnings or gearing. Our EPS estimates are maintained.

- We expect BON earnings to jump by 53% for FY14F following an improvement in EBIT margins. Its improved EBIT margin of 16% is sustainable, in our view, given its leaner cost structure – i.e. aggressive expansion costs for Indonesia and Vietnam in the past two years have been fully expensed.

- We continue to be optimistic about BON’s growth potential, underpinned by its healthy same-store-same growth momentum and margins expansion.

- At the current level, the stock is trading at a PE of 12x FY15F and 0.4x PEG – at a discount to Padini’s 13x PE and the sector average of 18x.

- We opine that valuations are justifiable and attractive as BON is one of the cheapest consumer stocks in Malaysia with robust earnings potential and strong brand visibility, as well as BON’s monopolistic position in the operating market of leather products.

Source: AmeSecurities