AmWatch - Bonia Corporation : With greater conviction BUY, 9 Apr 2014

STOCK FOCUS OF THE DAY

Bonia Corporation : With greater conviction         BUY

We reaffirm our BUY recommendation on Bonia Corporation (BON) with a higher fair value of RM5.40/share (vs. RM4.50/share previously), pegged to a higher 15x PE over CY14F earnings – at a premium to Padini Holdings’ (HOLD, FV: RM1.80/share) implied target PE of 12x.

Admittedly, we had been a tad conservative but following a meeting with management, we have raised our PE multiple given greater clarity on the group’s growth strategy. BON’s level of institutional funds has risen to 40% vs. 36% institutional holdings for Padini. We expect institutionalisation to expand further, underpinned by its robust earnings trajectory and broadening geographical presence. BON’s 3-year EPS CAGR is estimated at 35% vs. 10% for Padini.

BON appears to be in a monopolistic position in its operating market of leather products. BON’s competitors are international premium brands, i.e. Furla and Coach, whose products are priced 40%-50% higher than those under BON’s premium brands. Its strong SSSG momentum should continue. In the same operating market (Malaysia), BON achieved a positive SSSG of +6% vs. Padini’s negative SSSG in the recent 1HFY14 results. To further underscore BON’s growing SSSG, we are encouraged by the manufacturing capacity expansion (+50% capacity) at its 3rd factory in Malacca.

Management has a more guarded approach towards overseas expansion to cushion gestation losses. Malaysia, Singapore, Vietnam, and Indonesia remain as key markets. More importantly, it is constantly eyeing new markets within Asia. We understand that BON may spin off one of its business units. In our view, such a move would help unlock value and lift the latter’s’ profile.

At the current level, the stock is trading at a PE of 12x FY15F and 0.4x PEG – at a discount to Padini’s 13x PE and the sector average of 18x. Valuations are attractive as BON is one of the cheapest consumer stocks in Malaysia.

Others :

Berjaya Sports Toto : Silver lining in dividends     HOLD

NEWS HIGHLIGHTS

Sunway : Expand tie-up with Viacom to develop RM100mil Nickelodeon-themed attraction

Malayan Banking : Maybank Islamic issues Basel III-compliant sukuk

Oil and Gas Sector : Petronas reorganizes

Consumer Sector : Retailers still not ready for GST

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.