Bonia Corp is a house of luxury lifestyle brands founded in 1974, defined by its quality craftsmanship. It is involved in the design, manufacturing, marketing, distribution, and retailing of bags, accessories, footwear, watches, eyewear, and more through its own brands and licensed brands. Its own brands include Bonia and Braun Buffel, while licensed brands include Renoma, Valentino Rudy, and Santa Barbara Polo & Racquet Club.
Established brand positioning and growing loyal customer base. We understand that the change in leadership has brought a renewed focus on rebuilding the brand equity of Bonia and Braun Buffel. Its ramp-up in marketing efforts – especially within the digital space through collaboration with Key Opinion Leaders (KOLs) – has allowed it to boost brand awareness, enhance credibility, and gain brand appeal. Going forward, Bonia aims to replicate these effective brand-building exercises for its other three licensed brands – Renoma, Valentino Rudy, and Santa Barbara Polo & Racquet Club. We also gathered that its customer age group has come down to the 25-35 range. This demographic tends to have a higher propensity to spend on luxury items, which will drive long-term performance for the group.
Launching of new product lines to drive sales growth. Bonia’s positioning of offering high-quality luxury goods at significantly lower price point than Western luxury labels – with an estimated basket size of c.MYR1000 – puts the brand in a unique category of its own. We gathered that the group is launching its new full product line for fall and winter 2023, that includes ready-to-wear items. With more frequent product launches that cater to modern trends, the group is wellpositioned to stimulate consumer spending and drive its sales growth. Moving forward, Bonia plans to open or relocate stores to more strategic locations with attractive designs to attract consumer footfall.
Potential margin expansion from higher ASPs. We gathered that Bonia hiked its ASPs by c.5% in 1QFY23 and 2QFY23 to pass on the increase in certain input costs – this could lead to further improvement in its GP margins. Nevertheless, management said it has decided to halt ASP hikes in the near term to gauge consumer response. Note that Bonia’s GP margin rose to 60.8% (+4.4ppts YoY) in 2QFY23.
Undemanding valuations. Bonia is trading at 8x FY24F (Jun) P/E, which is significantly below the industry average of c.18x. We think the low valuation is attractive, given its 3-year earnings CAGR of 14.1% (FY22-25F). We believe the market has not fully priced in Bonia’s elevated earning base yet, which we think is sustainable – driven by its improving brand equity, increase in ASPs, effective marketing engagements, and innovative product launches.
Results highlights. Bonia recorded 1H23 revenue of MYR203.9m (+40.6% YoY) thanks to the resumption of store operations upon the economic reopening, whilst 1H22 was at a low base, affected by lockdowns. 2Q23 revenue grew to MYR112.1m (+9.7% YoY, +22.2% QoQ) driven by strong consumer spending amidst the year-end seasonality and festivities. Consequently, Bonia recorded core earnings of MYR19.0m (+52.5% YoY, +24.8% QoQ). Strong net cash position. The group has a healthy balance sheet with net cash of MYR42.2m or MYR0.21 per share as at 2Q21. We expect the company to stay in a net cash position for FY23-25F. ROE. The group’s ROE has been improving since FY20, from 3.2% to 10.5% in FY22. We expect ROE to improve on better earnings expectations ahead.
Dividends. Bonia recently adopted a dividend policy of paying out at least 30% of earnings. For FY22, the group declared a DPS of 19 sen, implying a dividend payout ratio of 95.7% for its shareholders. Management indicated that any surplus cash will also be paid out as dividends, provided there are no other potential investments in capex or M&A. Assuming the dividend payout ratio is at c.50% of PAT, we are looking at FY23-25F DPS of 13-15 sen, implying c.6% yield at the current price.
Management. Dato’ Sri Daniel Chiang Fong Seng was appointed to the board in 2014, and holds the position of Group Executive Director. Having joined the group in 2008, his responsibilities include business development, strategic planning, and R&D. Chiang Sang Sem, the founder of Bonia, was appointed to the board in 1994, and is the Executive Chairman. His involvement in the leather industry spans over 45 years, and he is responsible for Bonia’s overall business development and strategic plans and policies.
Fair value. Ascribing a P/E range of 12-13x (close to its 5-year mean) to its FY24F (Jun) EPS, we derive a fair value range of MYR3.25-3.52. We believe Bonia’s current valuation of 8x is unjustified, given its 3-year earnings CAGR of 14.1% (FY22-25F), driven by its ASP hikes and innovative product launches, and backed by its strong brand equity and sizeable loyal customer base. A dividend yield of c.6% is another plus point.
Key risks include higher-than-expected operating costs, weak consumer sentiment, and competition.
Source: RHB Securities Research - 16 May 2023
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2023-05-16 17:23