Cautious outlook on Bonia's top-line growth

PETALING JAYA: Affin Hwang Capital is maintaining a “sell” call on Bonia Corp’s shares with a target price of 49 sen, despite continued measures to improve margins, as they remain cautious on the company’s top-line growth.

The stock closed one sen up to 58.5 sen yesterday.

“We remain cautious as price increases would be better for margins but may affect volume in times of weak consumer sentiment as Bonia specialises in consumer discretionary products,” the report said.

“We still remain wary on Bonia’s top line growth as Bonia’s same store sales growth (SSSG) still shows negative for all main countries,” the report further read.

Bonia saw revenue fall by 17% year-on-year in the first quarter of financial year ending June 30, 2017, gross margins improved by four percentage points year-on-year to 58.4%.

The research firm feels that Bonia will not be affected by the new Anti-Profiteering Act.

According to management, it will continue to reduce the discounts given as compared to FY16, introduce higher margined product lines, keep prices of existing stock constant, and increase prices of new product range for the key brands Bonia and Braun Buffel by an average of 5%.

The group has been trimming stores and counters that are not doing well.

Affin Hwang learnt that Braun Buffel has been withdrawing from counters and the brand is now only sold in boutiques. This comes in line with the group’s strategy of building Bonia as a premium brand. In 1Q17, the group closed from 49 counters to 1,205 counters from FY16.

“We gather that management aims to open eight boutiques this year.”

The group is also targeting tourists and tourist centric areas in Malaysia such as Genting Pemium Outlet (targeted April 2017) and Penang Design Outlet (opened end November 2016).

“We gather that the shop in the Johor Premium Outlet is doing well,” Affin Hwang said in its note yesterday.

Upside potential for the stock include better-than-expected consumer sentiment and lower cost of goods sold.