Bonia ... Mar10

From RHB Research

Within expectations. Bonia’s 1QFY06/10 net profit of RM7.2m was within our and consensus expectations, accounting for 24% and 26% of our and consensus estimates, respectively. As expected, no dividend was declared during the quarter.

Yoy, net profit jumped by 20.3% on the back of: 1) 6.8% yoy increase in revenue due to higher consignment and boutique sales from Mega Sales and Hari Raya activities; and 2) +0.7%-pt improvement in EBIT margin due to better control in overhead operations.

Future prospects. Moving forward, we believe that Bonia’s sales would improve in view of indicators that consumers are becoming more optimistic, given signs that the worst of the global downturn has passed. We maintain our FY10 revenue per outlet growth projections of 10% and 6% for its overseas and local operations respectively, coming from FY09’s low base. Our FY11-12 revenue per outlet growth of 2-8% and 5% for its overseas and local operations respectively remains unchanged. We also maintain our 12-36 p.a. new point-of-sales projection, which pales in comparison to its average 74 new point-of-sales p.a. for the past five years as we believe management will be focusing more on brand-building activities and strengthening of its boutique sales, to help improve the company’s margins. Bonia has an internal target of RM500m revenue and RM50m net profit to be achieved by FY13, which we believe is achievable assuming gradual economic recovery.

Risks to our view. The risks include: 1) weak consumer sentiment and consumer spending; 2) forex risk; 3) cash flow constraint as Bonia has a long debtor collection period of 85 days; and 4) cannibalisation of own brands vs licensed brands.

Recommendation
We maintain our indicative fair value of RM1.33 (current RM1.03 as of 12/Mar/2010, based on unchanged target PER of 9x, representing the lower end of its historical PE band of 9-15x. Maintain our BUY recommendation on Bonia.