Bonia still kept at Hold at CIMB Research

Bonia says it wants to conduct two more public listings in the region and be well-established in five other countries.

KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Bonia but with a lower target price of 61 sen, still based on 16.3 times CY17F price-to-earnings (P/E), which is in line with the sector average.

The research house said on Tuesday following the release of the retail company’s financial results for the financial year ended June 30, 2016, it lowered its FY17-18F earnings per share (EPS) forecasts by 1.5%. 

“While we forecast a 20.4% on-year improvement in core net profit for FY17, we note that this is coming from a low base as the group has been experiencing core net profit decline of 24%-36% on-year over the past two years,” it said.

CIMB Research said Bonia’s FY6/16 core net profit of RM29.2mil came in within its and market expectations at 98% and 97% of the respective estimates.

The FY6/16 revenue and bottomline growth continued to be hit by weak domestic and overseas sales as well as higher operating costs due to unfavourable foreign exchanged.

“Stripping out one-off items in 4QFY16, core net profit increased to RM8.4mil on the back of 7.8% on-year revenue growth. Maintain Hold, with a lower 12-month target price of 61 sen,” it said.

The research house said the upside risks include stronger-than-expected recovery in consumer spending on discretionary products while the downside risks include stiffer-than-expected retail rivalry.

CIMB Research said Bonia’s FY6/16 revenue slipped 4.3% on-year to RM665.4mil while core net profit dropped by a steeper 37.2% on-year to RM29.2mil. 

“This represented 98% of our and 97% of consensus full-year forecasts; we deem this in line with expectations. No dividend was declared during the quarter (FY15: 1.25 sen),” it said.

It also pointed out although Bonia’s 4QFY16 revenue rose 7.8% on-year, reported net profit still dropped 6.5% on-year to RM4.1m. 4QFY16 EBIT margin dipped 0.7 percentage to 7.7%, due to higher operating costs for its imported goods (as a result of the weaker ringgit). Nonetheless, after stripping out the one-off items for the quarter, core net profit was 67% higher on-year at RM8.4mil.

Bonia’s FY16 operating profit shrunk 31.7% on-year to RM56.9mil, consequently dragging down EBIT margin by 3.4 percentage points to 8.6%. Its Indonesian operations reported a 50% on-year increase in profit before tax to RM3.9mil but the rest of its operating markets exhibited weak performances. 

More notably, Vietnam sunk into the red and reported a pretax loss of RM2mil (vs. FY15: RM500,000) while Malaysia (-37.4% on-year) continues to be plagued by the inability to pass on costs due to the weaker consumer spending environment.

“While we anticipate a gradual recovery in consumer sentiment in 2HCY16, we still believe that consumers will remain cautious on their discretionary spending. Having said that, we expect FY17 to be a better year for the group as it shaves off its loss-making boutiques for its licensed brands and refocuses its strategy to promote its core brands.

“The group will also remain selective on its store openings and will only open boutiques, particularly in outlet malls where it sees future growth,” said CIMB Research.