-  We reaffirm our BUY on Bonia Corporation (BON), with an unchanged fair value of RM1.55/share, pegged to a PE of 16x its CY15F earnings, given an intact earnings recovery.

-  BON released its FY14 results (ended June) yesterday, with a core net profit RM60mil.

-  Stripping off the exceptional items relating to the impairment loss on loan to associate and loss on disposal of its subsidiary, FY14 core earnings were largely in line with our (-4%) estimate but below consensus’ (-8%). The discrepancy between our and consensus estimates appears to be a stronger sales assumption.

-  The FY14 revenue surged 9% YoY to RM692mil. SSSG remained healthy: Malaysia (+6%), Singapore (+1%), Indonesia (+50%), boutique (+6%) and counter (+6%).

-  Moreover, earnings improved on the back of better control of operating expenses resulting from store rationalisation and consolidation. This led to an improvement in EBIT margin to 13.4% from FY13’s 12.4%

-  The key contributors remained in its Malaysia market (60% of revenue) followed by Singapore (32%). More importantly, the group’s aggressive expansion into Indonesia and Vietnam is starting to bear fruit, whereby PBT turned positive on a full-year basis.

-  During the year, BON opened 21 boutiques and 135 counters, ending up with 164 boutiques and 1,120 counters.

-  BON’s earnings recovery is intact and growth will be buoyant stemming from:- (1) improved sales volume for its in-house and licensed brands; (2) regional expansion, particularly for the Indonesia high-growth market; (3) improved operational efficiencies through store consolidation, rationalisation and refurbishment; and (4) ramp-up of sales in new stores. Earnings upside is expected come from China should the venture materialises.

-  In addition, we expect earnings to rise by 8.9%-13.3% over FY15F-FY17F underpinned by stronger contributions from Indonesia and Vietnam. The key risk to our earnings forecast is a slowdown in regional consumption. We introduce FY17F earnings at RM107mil.

-  At the current level, the stock is trading at an FY15F PE of 14x – below its 5-year historical peak.

Source: AmeSecurities