- We reaffirm our HOLD recommendation on Bonia Corporation with an unchanged fair value of RM1.00/share, pegged to 14x PE on CY15F earnings, following its 9MFY15 results.

- Bonia reported core net profit of RM14mil for 3QFY15, bringing 9MFY15 core earnings to RM42mil – meeting 83% of our full-year estimate of RM51mil, and 79% of consensus estimate.

- This is within our expectation as we are anticipating a significant slowdown in consumer retail spending post GST implementation, particularly in 4QFY15. No dividend was declared.

- The increase in 9MFY15 topline (+4% YoY) was mainly attributed to the one-off sales of consignment stock to Vietnam and Indonesia. Excluding this, topline grew 2% YoY and 1% QoQ, contributed mainly by organic growth in Vietnam, Indonesia, and Malaysia.

- We believe that sales were also helped by accelerated pre-GST shopping given consumers’ expectations of higher prices post GST implementation. This had led to Malaysia’s SSSG improving to +6% in 3Q from 2Q’s -8%. Nevertheless, SSSG for the 9M period is on a deceleration trend at -2% YoY.

- Net profit margin edged lower YoY to 7.8% from 9.1% due to aggressive pre-GST promotional activities and the increase in operating expense (+5% YoY), i.e. boutique rental, staff cost, and litigation cost.

- Elsewhere, on a 9M basis, Indonesia’s SSSG continued to remain robust at +12% due to positive consumer sentiments and a low base, while Singapore recorded a SSSG of -3%.

- Bonia opened six new boutiques and 20 new consignment counters in 3Q alone.

- We remain cautious on Bonia’s near-term earnings due to the risk of lower margins; the outlook in the next two quarters remains challenging as consumer retail spending is likely to have softened after 1 April.

- We believe that Bonia will continue to undertake promotion activities in Malaysia to boost sales volume given its competitive pricing. Malaysia continues to be its key operating market – contributing to63% of total revenue. Regional expansions into Indonesia and Vietnam remain well intact.

- At the current level, the stock is trading at a forward PE of 17x, which is above its 5-year historical PE of 12x.

Source: AmeSecurities Research - 28 May 2015