A Challenging FY18, Uncertain Outlook

Bonia’s FY18 core net profit of RM25m (-26% yoy) came in marginally below our estimate, accounting for 93% of the full-year forecast. Revenue declined by 15% yoy as a result of the closure of nonperforming outlets and weak sentiment in overseas markets. Looking ahead, the outlook still remains uncertain post the demerger of the CRG Group as we have yet to see the fruits of Bonia’s brand repositioning strategy. Maintain HOLD with a revised TP of RM0.44.

FY18 Core Earnings Marginally Below Expectations

Bonia recorded weaker FY18 revenue (-15% yoy), as it saw a decline in sales in both the domestic and overseas markets. We understand that the domestic market was affected predominantly by the closure of nonperforming outlets, as we expected a relatively flat SSSG in FY18. The overseas markets also faced declines in revenue as Bonia faced tougher retail competition there. As a result of higher operating expenses in the overseas markets, overseas PBT faced a sharper decline of 63% yoy. Consequently, Bonia’s FY18 core net profit (after accounting for EI and discontinued operations) of RM24.8m came in marginally below our estimate (93% of our previous FY18 forecast).

Some Sequential Revenue Improvement Qoq

Bonia recorded some recovery in revenue on a qoq basis (+6.2% qoq), despite continued store rationalisation. This was driven mainly by an increase in sales in Malaysia coinciding with the festive holidays during the quarter. Overseas markets also showed a slight improvement qoq.

Uncertain Outlook for FY19

After facing multiple quarters of SSSG contractions despite the closure of non-performing outlets, Bonia’s turnaround prospects still appear quite uncertain. While Bonia could potentially benefit from tailwinds arising from better domestic consumer sentiment, its brand repositioning to cater to the higher-end market looks to be challenging in the near term as it faces stiff competition from established international brands.

Maintain HOLD With Adjusted TP of RM0.44

We have made some adjustments to our FY19-20E earnings, and introduce our FY21 estimates. We maintain our HOLD call, with a revised TP of RM0.44 based on an unchanged PER of 12x on our FY19E EPS (previously CY18E). Key risks include better/weaker-than-expected consumer sentiment and higher/lower margins.

Source: Affin Hwang Research - 3 Sept 2018