Bonia’s turnover growth to remain challenging in FY17
KUCHING: Despite recording a profit margin expansion in the first quarter of financial year 2017 (1QFY17) ended September 2016, Bonia Corporation Bhd’s (Bonia) turnover growth prospects for FY17 remains challenging.
Affin Hwang Investment Bank Bhd (Affin Hwang) in a report yesterday said FY16 ended June 2016 was a challenging year for Bonia as the retailer’s financials were hit in terms of both top and bottom lines.
The research firm noted Bonia’s lacklustre financial performance in FY16 were due to the increase in imported merchandise costs because of the weak ringgit, the inability to pass on costs to consumers due to weak spending and sharp discounts on prices of selected products.
It noted the company’s gross profit margins have improved by four percentage points year-onyear (y-o-y) to 58.4 per cent despite revenue for 1QFY17 fallen by 17 per cent y-o-y.
Affin Hwang gathered that Bonia’s improved earnings in 1QFY17 was due to the group’s efforts in cost control and also through some form of price increase for certain new product ranges and a cut back on aggressive discounts implemented in FY16.
Despite that, the research firm was not convinced that the retailer’s revenue will be able to grow substantially.
As a result, Affin Hwang has forecasts a relatively flat revenue growth of two per cent y-o-y for Bonia in FY17 noting that the group has trimmed down on counters and focusing on boutiques outlets to generate more sales.
At the same time, the research firm has also projected an earnings per share (EPS) growth of 8.7 per cent y-o-y for FY17 from a lower base in FY16.
In spite of that, Affin Hwang has a cautious view on Bonia’s outlook as product price increases would be better for profit margins.
However, it opined that price increase might affect volume in times of weak consumer sentiment as Bonia specialises in consumer discretionary products.
On another note, Affin Hwang opined that B on ia will not be affected by the new Anti-Profiteering Act which could include new guidelines in the near future.
Following a company briefing, the research firm gathered that the retailer will continue to reduce the discounts given as compared to FY16.
Besides that, the research firm said the retailer will introduce higher margins product lines and keep prices of existing stock constant.
It added the company might look into increasing prices of new product ranges for its key brands Bonia and Braun Buffel by an average of five per cent.
Nonetheless, Affin Hwang believed the company’s earnings outlook for FY17 will face more pressure due to the weak consumer sentiment.
Hence, the research firm has assigned a “sell” recommendation for the retailer’s share with a fair value of 49 sen per share.