Bonia’s 9MFY19 results exceeded our expectations, accounting for 109% of our previous full-year forecast. The surprise was mainly due to higher cost savings from the group’s rationalisation exercise. Despite some positives seen during the quarter, we remain cautious on Bonia’s outlook amid challenging conditions in the fashion retail market. After rolling forward our valuation horizon, we maintain our SELL recommendation, albeit with a revised TP of RM0.25.

Above Expectations

Without the MFRS 15 reclassification (refer to pg2 footnotes explanation), Bonia’s 9MFY19 revenue shrunk 7.9% yoy to RM303.9m. The lower sales was recorded amid challenging market conditions alongside the closure of some non-performing outlets. However, operating margins improved slightly yoy, driven by higher cost savings arising from the group’s ongoing rationalisation exercise. Hence, despite the weaker sales performance which were in line with our expectation, 9MFY19 core earnings of RM10m exceeded our forecasts, accounting for 109% of our previous FY19E estimate.

Stemming the Decline, But Turnaround Not Evident Yet

For 3QFY19, sales came in weaker sequentially on the back of seasonally stronger year-end performance during 2QFY19 (-11.9% qoq). On a yoy basis, the sales decline (-2.4% yoy) during the quarter marks an improvement over 1QFY19 (-13.6% yoy) and 2QFY19 (-7.8% yoy), while core earnings improved 14.4% yoy as further cost savings were recognised (particularly staff costs). Despite the positives, it still remains to be seen whether Bonia could mount a substantial turnaround for its business, in light of ever intensifying competition in the fashion retail market.

Maintain SELL With Revised TP of RM0.25

We raised FY19 EPS estimates after factoring in higher margins on improved cost control, but cut FY20-21E EPS respectively due to higher prevailing effective taxation rates seen. That said, we remain cautious on Bonia’s outlook. Consequently, we maintain our SELL recommendation on the stock, albeit with a revised TP of RM0.25 (from RM0.20) based on an unchanged PER of 13x applied on CY20E EPS. Upside risks include betterthan-expected sales and lower than expected operating costs.

Source: Affin Hwang Research - 29 May 2019