- We reaffirm our BUY recommendation on Bonia Corporation (BON) with a revised ex-all fair value of RM1.55/share (under review) from RM6.20/share previously, pegged to a PE multiple of 15x its CY15F earnings. This follows the enlarged share base from its corporate exercise.

- The corporate exercise involves: (1) 1-for-1 bonus share issue of up to 201.6mil share; and (2) 1-into-2 share split.

- Note that the stock will be traded ex-bonus and ex-stock spilt today. The entitlement date has been set for 22 July.

- The exercise would enlarge BON’s outstanding number of shares to 806.3mil (+300%) from 201.6mil. While this exercise does not impact BON’s valuation and fundamentals, its trading liquidity would improve.

- We maintain FY14F-FY16F EPS for now as this exercise does not change BON’s earnings prospects. We will be reviewing our numbers.

- We continue to like BON for its monopolistic position in leather goods and attractive price points of its premium brands compared to foreign peers (i.e. Furla, Coach).

- More importantly, we see upside in its overseas business as contributions are still relatively small at 9% (excluding Singapore) coupled with its aggressive expansion. For the medium- to long-term, expansion in Indonesia would underpin profits once operations turn around. Its Vietnamese operations are ready to ride on the country’s economy recovery.

- While concerns about a potential slowdown in domestic consumption are expected in CY14, we expect positive same-store-sales growth (SSSG) to continue due to strong brand visibility. SSSG may surprise due to the Visit Malaysia Year and its growing regional presence, we believe. Operating margin for its cornerstone brands should continue to expand.

- We are encouraged by management’s recently announced expansion plans in China. We think that BON would do thisby partnering an established departmental store player to reduce investment costs.

- BON remains as one of our top pick within the consumer sector and it is fast morphing into a regional consumer play. Valuations are undemanding at FY15F-FY15F PEs of 13x-15x, underpinned by robust earnings trajectory (3-year earnings CAGR of 30%). At current level, the stock is trading at an FY15F PE of 15x – below its 5-year historical peak of 21x.

Source: AmeSecurities