Bonia shows signs of improvement

BONIA Corp Bhd, a rising homegrown luxury and fashion group, had a promising growth trajectory when it first began to venture into the region a few years ago.

Famous for its leather bags, shoes and apparels, the brand appeals to consumers looking for a decent, yet affordable, brand.

Bonia’s prominent brands include Braun Buffel, Carlo Rino and Sembonia. The group also holds the licence to distribute renowned international brands such as Santa Barbara Polo & Racquet Club, Valentino Rudy, The Saville Row Company, Pierre Cardin and Renoma.

Apart from Malaysia and Singapore, the company also has a presence in Singapore, Vietnam, Indonesia and the Middle-East.

After seeing a record high in earnings in financial year 2014 (FY14), Bonia’s financial performance started to decline in FY15, when the ringgit weakened against the US dollar (USD), as most of its raw materials used for products are denominated in US dollars.

Like all the other retailers, Bonia has also been affected by the GST and soft consumer sentiment.

The retailer posted a net profit of RM46.36mil and revenue of RM695.33mil in FY15, from net profit of RM55.12mil and revenue of RM691.61mil in FY14.

In FY16, Bonia booked a net profit of RM24.91mil against a revenue of RM665.44mil.

On top of that, declining margins was a cause for concern for the company that offered discounts to customers, particularly during the festive period to spur sales.

Having lost its appeal in the last two years, following the crunch in earnings, the company embarked on a series of consolidation and rationalisation process by closing down a number of non-performing boutiques and consignment counters, particularly for licenced brands.

The exercise had resulted in better earnings in FY17.

The group booked a 30.2% jump in net profit to RM31.73mil from RM24.37mil, a year ago, against a revenue that dropped 7.9% to RM613.16mil from RM665.44mil.

An equity analyst says Bonia’s consolidation and rationalisation exercise involved the closure of almost 200 consignment counters, from the 1,000 counters it had in departmental stores in Malaysia.

“The exercise was part of Bonia’s cost savings measures to see some improvement in the business.

“But that’s not all, the retailer had also fine-tuned its pricing strategy by introducing higher-margin products and reducing discounts to customers during FY17,” says the analyst.

When asked if Bonia had reduced prices of its goods, the analyst says the group did the reverse and hiked the average selling price (ASP) for Bonia and Braun Buffel brands and this gave the retailer better margins.

Commenting on the outlook for Bonia, the analyst reckons that Bonia will be shutting down more consignment counters over the next few quarters.

“Topline recovery will be slower, but we can see an improvement in bottom line, going forward,” he adds.

Philip Wong, an analyst with AmInvestment Bank upgraded Bonia to a “buy” call, from ‘hold’ previously with a higher fair value of 75 sen per share from 65 sen per share in tandem with Bonia’s better earnings.

“Bonia’s fourth quarter FY17 earnings of RM7.7mil or a 103.3% year-on-year (y-o-y) rise brought FY17 core earnings to RM31.1mil (26.7% y-o-y).

“The results beat both ours and consensus expectations, accounting for 111% full-year earnings estimates,” says Wong.

Revenue on the hand declined because Bonia had shut down almost 22% of consignment counters and now has 984 as of the fourth quarter FY17.

But it seems to be a turnaround quarter for Bonia and Braun Buffel, registering same store sales growth (SSSG) of minus 1% and 9%, respectively, Wong notes.

FY17 gross margins improved 3.5 percentage points to 58.6% against higher ASPs.

There could be possibly an upside to margins if foreign exchange rates remains stable and ASPs hiked further in FY18.

“The cost savings associated with the closure of the consignment stores could trickle to its earnings before interest and tax margins going into FY18,” he reckons.

Meanwhile, CIMB Research analyst Kristine Wong upgraded Bonia to an “add” rating, from “hold” previously, with a higher target price of 82 sen from 57 sen.

The house thinks that Bonia’s earnings prospects in FY18 will be positive given the closure of non-performing boutiques and profit contribution from stores in Indonesia.

“The key highlight for FY17 was the growth of Bonia’s Indonesian business, which is turning into a significant contributor in terms of sales and pretax profit.

“The company’s Indonesia business contributed 6.3% to FY17 sales (3.2% in FY16) and 9.1% of pretax profit (8.5% in FY17), due to opening of additional Braun Buffel boutiques and 23 counters in Indonesia, which was opened in September 2016,” she adds.

The key downside risks to Kristine’s call include stiffer competition in the region, significant rise in raw material prices and slowdown in consumer spending.

Bonia shares closed down half sen or 0.81% at 62 sen on Friday, with 4.93 million shares traded.