- We are downgrading Bonia Corporation (BON) from BUY to HOLD, with a lower fair value of RM1.10/share (vs. RM1.55/share previously), pegged to a PE of 14x its CY15F earnings, given the challenging outlook ahead.

- BON’s 1QFY15 results were well below our and consensus estimates – accounting for 17%-18% of fullyear estimates.

- The group reported core net profit of RM13mil (-9% YoY, +5% QoQ).

- No dividends were declared during the quarter.

- Nonetheless, we have trimmed our EPS estimates by 20%-45% over FY15F-FY17F given the disappointing weak same-store sales growth (SSSG). We project flat EPS growth for FY15F.

- 1QFY15 saw a reversal in SSSG; SSSG contracted across the board (Malaysia -5% and Singapore -8%) with the exception of Indonesia’s +15%, contributed by the positive consumer sentiment and low base.

- Given that the deceleration in SSSG is likely to persist, we have revised our SSSG assumption downwards to -3% for Malaysia and -5% for Singapore in FY15F.

- Malaysia market, which anchors the group’s revenue (69% of revenue), is expected to experience some deceleration in sales over the next one year at least, as consumers hold back on discretionary purchases.

- The outlook for Malaysia is expected to be exceptionally challenging in FY15F given an anticipated contraction in consumer spending and particularly in 4Q – compounded by the GST impact.

- While management acknowledges the challenging market condition ahead, revenue grew by a modest 1.5%, driven by Braun Buffel and export sales to Vietnam and Indonesia.

- Thankfully, margins continued to be supported by the closure of non-profitable boutiques (Malaysia: 7, Vietnam: 4) given the group’s proactive store management. EBIT margin compressed by 0.6ppts YoY to 12.9%.

- During the three months, BON had opened two boutiques in Singapore.

- The stock is currently trading at a PE of 13x, above its historical mean trend of 12x.

Source: AmeSecurities