Bonia announced that it is contemplating the proposed demerger of CRG and its subsidiaries (CRG Group) and the proposed listing on the LEAP Market of Bursa Securities thereafter. CRG’s contributions to Bonia’s revenue, PBT, and net assets were 15.5%, 8.8%, and 15% respectively in FY17. The details and valuation of the listing is yet to be determined. We are somewhat neutral to slight positive on the announcement. Maintain HOLD with unchanged TP of RM0.55 as we await more clarification from management.

Proposed Demerger and Listing of CRG

Bonia announced that it is contemplating the proposed demerger of CRG and its subsidiaries (CRG Group) from Bonia. CRG Group will submit a listing application to Bursa Securities for its listing on the LEAP Market of Bursa Securities thereafter. The proposed subdivision of all the existing ordinary shares in CRG into such number of new ordinary shares is to be determined later. Shareholders of Bonia will get pro-rata distribution of CRG shares on an entitlement date to be determined later. The rationale for the proposals is to unlock shareholders’ value in CRG Group, to enable CRG to enhance its corporate reputation through the listing status, and access to more fund-raising options for business expansion.

Details of CRG Group

CRG, a wholly-owned subsidiary of Bonia, is involved in the designing, manufacturing, promoting, marketing, distribution and retailing of Carlo Rino and CR2 branded fashion products. According to the announcement, the contributions of CRG Group to the revenue, PBT, and net assets of Bonia Group were approximately 15.5%, 8.8%, and 15% respectively in FY17. Carlo Rino’s sales have suffered from poor consumer sentiment, declining from RM132m in FY15 to RM95m in FY17.

Maintain Hold and TP of RM0.55

We are somewhat neutral to slight positive on the news. At this juncture, the valuation of CRG’s listing on the LEAP Market has not been determined and a low valuation will be negative to Bonia’s share price. However, we expect it to have long term positive impact on Bonia post the demerger as it can focus more on building the brands of Bonia, Braun Buffel, and Sembonia. Bonia will also be a more profitable entity given the weaker PBT margins of Carlo Rino (FY17: 5.2%) vs Bonia group (FY17: 9.9%), potentially allowing for future PE multiple expansion. We maintain our earnings forecast as we await further details. Maintain HOLD with an unchanged TP of RM0.55 based on 12x PE (5-year mean PE).

Source: Affin Hwang Research - 7 Feb 2018