■ We remain positive on Bonia’s earnings prospects post its 1QFY6/23 results briefing as sales momentum is expected to be strong in quarters ahead.
■ We expect Bonia to benefit from its ongoing growth plans that include: i) store expansion/relocation, ii) ASP hikes, and iii) new product launches.
■ Reiterate Add, with an unchanged TP of RM3.00 (13x CY23F P/E).

Robust SSSG in 1QFY6/23 across its two key brands

Bonia Corporation (Bonia) said its 1QFY6/23 sales (+114.0% yoy) were driven by robust same-store-sales growth (SSSG) across its two key brands: BONIA (+149.8% yoy; 50% of 1Q23 sales) and Braun Buffel (+201.7% yoy; 38% of 1Q23 sales). Note that the strong SSSG was also partly due to a low base in 1Q22 owing to Covid-19 lockdown measures, severely affecting consumer footfall and its business operations. That said, Bonia disclosed that its two core brands recorded positive SSSG even when comparing its 1Q23 sales to 1Q20 (pre-pandemic level): BONIA (+7.4%) and Braun Buffel (+18.5%), which is a testament to its effective rebranding efforts and brand-building exercises via an omnichannel strategy conducted over the past two years.

Margins could trend higher in quarters ahead on selling price hikes

We believe Bonia’s GP margin could further improve moving forward as it is likely to hike its product price by c.5% in 2QFY23F (it raised its selling prices by c.5% in 1QFY23) to pass on the increase in certain input costs, which could further enhance its margins. Note that Bonia’s GP margin rose to 60.4% (+7.6% pts yoy) in 1Q23 and it aims to achieve a GP margin of 63-65% in the medium term. Even with the price increases, Bonia expects its 2QFY23F sales to be on track to achieve yoy growth amid the current high inflationary pressures, which is an indication of its strong pricing power backed by its strong brand equity, effective marketing initiatives (partnerships with key local and international influencers) and its sizeable loyal customer base, in our view.

New product launches and store expansion to drive future growth

Bonia expects to expand its product offerings to the ready-to-wear (RTW) segment (Fig 11, 12) with an official launch of its full product lines in 2H23 (2QFY6/24) to further catalyse its future sales growth with a projected sales contribution of RM15m/30m/60m in FY24/25/26. We estimate that the GP margin for the new RTW products is similar to or higher than its current leather-based product lines. In addition, we are positive on Bonia’s plans to open 2-3 more boutique stores in FY23F with attractive designs (Figures 9 and 10) and relocate its existing stores to more strategic locations with higher footfall.

Reiterate Add with an unchanged TP of RM3.00 (13x CY23F P/E)

We reiterate our Add call on Bonia with an unchanged TP of RM3.00 (13x CY23F P/E, in line with its current 10-year mean). At 10.5x CY23F P/E, Bonia is trading at a discount of 19.2%/61.7% to its 10-year mean/CGS-CIMB’s consumer discretionary average CY23F P/E of 27.4x. We also like Bonia for its i) attractive dividend yields (8-9% for FY23-25F), ii) healthy net cash position of RM57.1m (28.3sen/share) as at end-1Q23, and iii) strong brand equity of BONIA and BRAUN BUFFEL in its domestic and overseas markets.

Source: CGS-CIMB Research - 7 Dec 2022