Bonia’s FY13 numbers were above  consensus  and  our  expectations. Sales  rose  9.1%  y-o-y  while  net  earnings  were  flattish  due  to  higher operating expenses arising from its regional expansion. As we roll over our  valuation  to  11x  FY14  EPS,  we  derive  a  new  FV  of  MYR3.00  (from MYR2.42). As we deem its current valuation fair, we downgrade Bonia to NEUTRAL. 
 
- Above  estimates.  Bonia’s  FY13  revenue  grew  by  9.1%  y-o-y,  largely driven  by  higher  contributions  from  overseas  sales  especially  from Indonesia  (+81.3%  y-o-y  to  MYR17.4)  and  Vietnam  (MYR12m  vs MYR3.4m y-o-y), and stronger performance from Carlo Rino (+13% y-o-y)  and  Sembonia  (+19%  y-o-y).  Revenue  growth  at  its  Malaysian operation  stayed  solid  at  11%  y-o-y  while  Saudi  Arabia’s  sales moderated by 6% y-o-y. Turnover of subsidiary Jeco group weakened by 6.4%  y-o-y  to  MYR117m.  Core  net  profit  (excluding  a  MYR4m impairment  loss  for  property,  plant  and  equipment  and  a  MYR6.1m allowance for impairment loss on loan) moderated slightly by 0.2% y-o-y, no thanks to higher operating expenses (+14.2% y-o-y). This was mainly due  to  high  initial  investment  costs  incurred  for  business  expansion  in Indonesia and Vietnam.    

- Solid  Malaysian  sales.  Malaysian  consignment  counters  registered  a 5%  y-o-y  same-point-sales  (SPS)  growth  while  its  boutique  stores recorded  an  8%  y-o-y  same-store-sale  growth  (SSSG).  SSSG  for Singapore’s Jeco  stores  improved  by  2%  but  SSSG  of  Bonia  stores contracted by 2% y-o-y. EBIT margin dropped marginally y-o-y to 12.5% (FY12: 12.7%) on the back of higher operating costs.  

- Risks.  Key  investment  risks  include  weaker  consumer  spending  and higher commodity prices.

- Downgrade  to  NEUTRAL. We  increase  our  FY14  earnings  forecast  by 6.8%,  given  the  lower  than  expected  operating  cost  for  expansion,  and lift  our  FV  to  MYR3.00  (from MYR2.42)  as  we  roll  over our  valuation  to 11x FY14 EPS. However, as the stock is trading at a forward P/E of 11x, which is similar to its 3-year historical P/E of 11x, we downgrade our call to NEUTRAL.

Source: RHB