Bonia’s 6MFY20 core net profit of RM14.6m (+29% yoy) tracked ahead of our expectations, but largely on a lower-than-expected effective tax rate. Top-line sales however, continued to see decline on the back of store closures and softer consumer spending. We lift FY20E earnings forecast by 3.5%, accounting for lower tax but partially offset by subdued sentiment amidst Covid-19. Longer term, we cut earnings by 10% for FY21-22E as the operating environment remains challenging given an increasingly competitive retail landscape. Maintain SELL with a lower TP of RM0.80.

Lower-than-expected Tax Boosted Core Earnings

Bonia posted a lower revenue of RM222.3m (-4% yoy) for 6MFY20, attributed to the group’s rationalisation of non-performing stores on top of overall subdued consumer spending. EBIT margin stood firm at 11.2% supported by lower operating cost amidst store closures. Bonia’s PBT of RM19.6m (-9% yoy), was within our expectation. Net profit of RM14.6m (+29% yoy), however, tracked ahead of expectations largely due to a lowerthan-expected tax rate.

Sequentially Stronger on Year-end Festive Spending

On a qoq basis, both revenue and core net profit rose 36% and 96% to RM128.2m and RM9.7m respectively. This comes on the back of seasonally stronger year-end festive sales. Going forward, 2020 is set to be another challenging year for Bonia, with lower footfall in malls looking inevitable on the backdrop of softer consumer sentiment further compounded by the Covid-19 outbreak.

Maintain SELL With a Lower TP of RM0.80

We lift our FY20E earnings by 3.5%, in consideration of a lower effective tax rate while partially negated by impact of softer consumer sentiment in light of Covid-19. Longer-term however, we cut earnings by c.10% for FY21-22E as operating environment remains challenging for the group in view of the increasingly competitive fashion retail landscape. Post revision, our TP is lowered to RM0.80 based on an unchanged target PER of 9x CY20E EPS. Maintain SELL. Upside risks: (i) improvement in SSSG; (ii) uptick in consumer spending; and (iii) lower than expected operating costs.

Source: Affin Hwang Research - 27 Feb 2020