• MYR2.52 FV based on 12x CY24F P/E. Bonia Corp is poised to grow from a more favourable base effect, while its successful business transformation leading to stable earnings delivery and dividend payout (c.6- 7% yield) could drive a valuation re-rating. Currently trading at a single-digit valuation (a steep discount to peers), we view Bonia as a laggard play within the consumer sector – long established yet underappreciated, as well as benefitting from its enhanced brand reputation and likely improving consumer sentiment.

• Locally renowned luxury brand. Bonia offers a diverse range of products, including begs, accessories, footwear, and apparel. Its end-to-end approach encompassing manufacturing, design, R&D, and retail enables the company to ensure consistent quality and innovation in all its offerings. With almost 50 years of experience and track record, Bonia has established itself in the second-tier luxury market, distinguishing the brand for its enduring quality, innovative craftsmanship, and timeless style.

• Successful business rationalisation and brand building efforts. Bonia has achieved robust earnings growth and maintained relatively stable earnings delivery compared to pre-pandemic times thanks to its effective right-sizing efforts and improved brand equity. Its brand-building initiatives, include the introduction of new product lines and store modernisation to enhance the shopping experience, as well as strategic marketing with key opinion leaders (KOLs) have increased brand awareness, credibility, and overall appeal, resulting solid sales deliveries. Meanwhile, the omnichannel strategy presents a promising avenue for continued value generation by amplifying market presence and enhancing revenue streams over the long term.

• More favourable base effect. Bonia’s lacklustre share price performance (YTD: -21%) could be due to softer YoY earnings in 2023. To recap, the strong 2022 earnings, fuelled by pent-up demand and "revenge spending" made the YoY comparison unfavourable for 2023, as replicating the earnings in 2023 was challenging due to softer consumer sentiment and increased operating costs. Going into 2024, the high earnings base should normalise, allowing for Bonia's growth potential to be better reflected following its robust brand building efforts, coupled with the potential improvement in consumer sentiment from easing inflation, stable interest rates, and rising tourist arrivals.

• Undemanding valuation. Our FV is derived from a 12x CY24F P/E, in line with the average of comparable listed consumer retail peers (low to midteens). We expect a valuation re-rating for Bonia, attributed to its stable earnings delivery and generous dividend payout vs pre-pandemic, supported by stronger brand equity to drive consumption growth and market share gains, alongside its successful business rationalisation efforts. Key risks include higher-than-expected operating costs, weak consumer sentiment, and competition. 

Source: RHB Securities Research - 20 Dec 2023