Last Friday, Bonia Corporation announced in Bursa Malaysia that its Group Executive Chairman cum Chief Executive Officer, Chiang Sang Sem, is in discussions with several parties in relation to the acquisition of certain stakes in the company to order to increase his stake in Bonia. The Potential Acquisition, when completed, would result in Mr. Chiang and his family collectively holding more than 50% stake in the company.

Chiang raising his stakes. Currently, Chiang and his family currently hold 32.98% of Bonia, while Permodalan Nasional (PNB), the 2^nd largest shareholder, has a direct 12.1% stake, followed by Skim Amanah Saham Bumiputera, with 8.9%. We believe the proposal is targeted to strengthen the Chiang family's grip on the group. On its completion, the proposed acquisition would result in Mr Chiang (who is also the company's founder) and his family collectively holding more than 50% of Bonia, which will trigger a mandatory general offer (MGO) to acquire the remaining shares they do not hold in the company. This piece of news reaffirms the view we stated in our recent consumer sector report that the local consumer sector could see more M&As unfold.

Too cheap to let go, but' The indicative price for the proposed acquisition ranges from RM1.80 to RM2.00 per share, which translate into a FY12 PER of 6.3x to 7x. Based on the share's last closing price of RM2.59, the proposed acquisition price represents a deep discount of 22% to the last traded price. Moreover, the offer price is way below the valuations of recent acquisitions for retail companies of around 9x to 10x PER. Thus, we believe the potential acquired stake might be coming from Chiang's friendly parties. However, we believe Mr Chiang will have to offer a higher price in the potential MGO in order to entice the company's minority shareholders to give up their shares.  

Keeping Bonia's listing. Mr Chiang added in the announcement that he intends to maintain Bonia's listing status and that this would be firmed up on completion of the proposed acquisition. Assuming the proposal went ahead and triggered a MGO, we still do not think that it would achieve the delisting threshold of 75%.

Maintain BUY. We expect some selling pressure on Bonia shares when the market opens today due to the lower-than-expected pricing for the proposed acquisition. As we do not expect any fundamental changes in the group, we maintain our BUY call, at an unchanged FV of RM3.15, based on 11x FY12 EPS.

Source: OSK