Bonia Corp - Short-term Pain For Long-term Gain

Bonia’s FY12 results were below consensus and our estimates. Revenue and core net profit jumped 25.7% and 14.6% y-o-y to RM579.8m and RM51m, underpinned by better showing from its Malaysia and overseas operations while the healthy revenue growth lifted margins. As the company may see rising operating expenses in tandem with its aggressive overseas expansion, we are lowering our FY13 numbers. Maintain BUY, with a new FV of RM3.08, as we roll over our valuation to FY13.

Below expectations. Bonia’s FY12 results came in below consensus and our full-year estimates. Sales grew strongly by 25.7% y-o-y, largely driven by the full year revenue contribution of RM125m from Jeco. Meanwhile, the topline growth at both its Malaysia and overseas operations climbed 15% and 6% y-o-y respectively. The negative revenue growth from Singapore (-2% y-o-y) and Saudi Arabia (-40%) was mitigated by the high revenue growth in Indonesia (+58%) and Vietnam (+80%). By segment, the group’s retailing turnover surged 26.7% while revenue from the manufacturing division increased 17.3%, thus offsetting the negative revenue growth of 26.9% arising from investment sand property development.

Expansion bites into earnings. After excluding a total of RM10m in exceptional items for the fair value adjustment of RM4.6m on a long-term loan, a RM4.3m allowance for impairment loss on investments in associates and a RM1.1m impairment on investment properties, Bonia’s core net profit grew by 14.6% y-o-y to RM51m. The fair value adjustment of the loan and allowance for impairment loss on investment totaling RM8.9m were related to the recent acquisition of Braun Buffel Germany. The lower-than-expected earnings were also weighed down by higher general and administration costs arising from start-up expenses in Indonesia and Vietnam. Going forward, the group has linked up four new stores for Indonesia and Vietnam. Vis-à-vis 3Q, its revenue grew slightly higher by 0.2% while core earnings slid 66.4%, no thanks to higher overhead expenses stemming from the group’s expansion overseas.

Better margins. Bonia’s Malaysia consignment counters achieved a 10% y-o-y same-point-sales (SPS) growth while its boutique stores recorded a 13% y-o-y same-store-sales (SSS) growth while the Singapore stores saw a low 1% SSS growth. Gross profit and EBIT margins were higher by 1% and 0.9% y-o-y respectively, supported by stronger revenue growth.

Maintain BUY. We are cutting our FY13 numbers by 13% due to the weaker results and after factoring in higher operating expenses for Bonia’s overseas ventures. The 1^st “Renoma Café Gallery” - located opposite the Prince Court Medical Centre - will be opening by the end of this year. Although the high operating cost will affect Bonia’s profitability in the short term, we think that its business expansion is positive in the long run. Maintain BUY, with a revised FV of RM3.08, based on 11x FY13 EPS.

 

Source: OSK