Bonia posted a marginal core net loss of RM0.1m for 3QFY20, partly on the back of initial disruptions from Covid-19 which adversely impacted the group’s sales revenue. This tracks below our full-year expectations, as the subsequent 4QFY20 is expected to be worse hit with losses widening. In view of the results, we lower our FY20 earnings forecast by 25%, but make no changes for FY21/22E. Our TP is unchanged at RM0.50, based on a target PER of 9x CY21 EPS. Reiterate SELL as the retail business environment remains very challenging and earnings delivery is expected to be volatile in the upcoming quarters.

Worse Likely to be Felt in 4QFY20

Bonia’s 9MFY20 revenue came in lower at RM308.5m (-11.4% yoy) mainly attributed to declines in Malaysia and Singapore, but slightly offset by better performances in Indonesian and Vietnam. The declines in its core Malaysian and Singapore markets were largely a result of non-performing store closures on top of subdued consumer spending. On a positive note, continued rationalisation of its cost base has yielded better margins, leading to a core earnings improvement of 52.5% yoy to RM14.6m. That said, the results track below our full-year expectations as we foresee the next quarter to be worse off with losses likely to widen, as retail outlets were significantly impacted by lockdown measures in its key markets.

Not Expecting a Swift Recovery

Revenue was down 32.8% qoq to RM86.2m while the bottom line slipped into a loss of RM0.1m – partly owing to the initial disruptions of Covid-19. 4QFY20 will likely be the worst hit, as lockdowns and isolation measures had kicked in for most of the group’s operations in the four aforementioned countries of operation. While 2HCY20 should fare better HoH on the reopening of the outlets, a full swing back to 2019’s profitability may not materialise in the near term. Without an effective vaccine, strict measures will likely impede retail outlets’ traffic while a frail macro backdrop would restrict consumption spending on discretionary items.

Maintain SELL

We lower our FY20 earnings forecast in anticipation of another lossmaking quarter in 4QFY20 but kept the FY21/22E earnings unchanged. Our TP remains at RM0.50, based on an unchanged target PER of 9x CY21 EPS. Reiterate SELL as the business environment remains challenging and earnings are likely to remain volatile in the upcoming quarters. Upside risks: (i) availability of an effective vaccine, (ii) improvement in SSSG; (iii) sharp rebound in consumer sentiment; and (iv) lower-than-expected operating costs

Source: Affin Hwang Research - 23 Jun 2020