- We maintain our HOLD on Bonia Corporation but lower our fair value to RM0.75/share (from RM1.00/share) to reflect the downward revision in our earnings forecasts post its FY15 results and lower FY16F target PE of 11x (from 14x previously).

- Bonia wrapped up its FY15 on a weaker note, with 4QFY15 core earnings of RM5mil (QoQ: -62%; YoY: -54%). We deem its FY15 core net profit of RM48mil (YoY: -21%) to be broadly in line with our expectations but below consensus estimates as it made up 94% and 92% of the respective full-year estimates.

- Our core earnings exclude the one-off RM1.5mil provision for litigation cost for its Braun Buffel trademark dispute in China it booked in 2QFY15. We have also stripped out its 3QFY15 oneoff sales of consignment stock to Vietnam and Indonesia amounting to RM12.3mil from our top line, which resulted in a YoY revenue decline of 1% vs. a gain of 0.5%.

- A final single-tier dividend of 1.25sen/share was also proposed. This is the same quantum declared for FY14 and translates into a yield of 1.8% at the current price.

- As we had earlier cautioned, 4QFY15 was a very challenging quarter for Bonia. On top of it being the group’s seasonally weakest quarter due to the absence of any festivities, it had to also contend with continuous declines in consumer sentiment (at six-year low of 71.7pts) and implementation of the 6% GST – which it absorbed without any price increase – in FY15.

- The latter, together with the group’s ongoing promotional activities and high discounts to drive sales volumes, have resulted in its 4QFY15 EBIT margin declining by 5ppts QoQ to 9%. YoY, it was marginally lower at 12%.

- FY15 also saw a complete reversal of Bonia’s SSSG to -2%. We understand that SSSG had contracted across the board, with the exception of Indonesia, which was mainly due to its low base. Revenue at its key markets, namely Malaysia and Singapore (64% and 25% contribution to revenue), had retraced by 28% and 10% during the year while that for Indonesia was up by 16%.

- Looking ahead, we expect Bonia to undertake more promotional activities as part of its stock rationalisation program and to boost its topline. That said, we expect margins to be supported by closure of its non-profitable outlets and its more selective store openings.

- All in all, we have cut our FY16F and FY17F earnings by 12%- 14% after lowering our SSSG, net store openings and margin assumptions. We also introduce FY18F earnings of RM72mil.

- Valuation-wise, the stock is currently trading at an FY16F PE of 11x. This is 0.5SD below its 5-year mean of 12x. We believe that its weak near-term growth prospects have been priced in thus our HOLD recommendation remains.

Source: AmeSecurities Research - 1 Sep 2015