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3 Investment Nuggets On Bonia Corp
By: Louis Kent Lee
Articles (199) Profile

Bonia Corp (Bonia) is a manufacturer of leather goods and shoes, as well as being involved in the distribution of clothing and footwear.

Known most for its successful label BONIA, and in-house brands like SEMBONIA and CARLO RINO, this luxury goods player listed on the Malaysian stock exchange has got much more to offer than just quality leather.

There are 3 main investment nuggets that drew our attention to Bonia.

Well-Known Flagship Brand, With Good Brands Portfolio

Other than its own flagship brand; BONIA, the group also owns the following brands. (See table of brands below)

Prior to the 70 percent stake acquisition of Jeco, which owns the Braun Buffel trademark in 2010, the group’s own products have already taken the performance of the group to an eye catching level.

Sales and earnings before interest and tax (EBIT) have already shown compounded annual growth rate (CAGR) of some 12.9 percent and some 8 percent from FY06 – FY10.

Not only does Jeco own the Braun Buffel trademark, it is also the exclusive brand representative in the Asia Pacific region, coupled with holding the master license for Renoma in Singapore, Malaysia and Indonesia.

Jeco’s rights in using the Braun Buffel trademark in the Asia Pacific region will be till 30 June 2034. This is on top of its rights to distribute Braun Buffel goods in Europe, countries of the former Soviet Union, and Turkey.

FY14 results continue to see Braun Buffel adding strength to its revenue growth, where 33 percent of the RM59.3 million growth in revenue was driven by Braun Buffel.

Moving the frame to the present, CAGR for Revenue and EBIT from FY10 – FY14 stands at 17.8 percent and 21.9 percent.

Expansion Into Regional Markets Working

The company has been seen expanding aggressively and making its presence known in markets like Indonesia and Vietnam.

In FY13 alone, the number of stores in Vietnam and Indonesia have both seen growth in terms of store numbers between 140 percent – 200 percent.

Business segments in these markets have started to turn profitable in FY14. Operations in Indonesia registered an operating profit of some RM1.4 million compared to that of the RM2 million loss in FY13.

Likewise, operations in Vietnam also registered a RM0.5 million operating profit in FY14 compared to the RM8.7 million loss in FY13.

Stripping it down further, it is likely previous losses attributable to these regions were mainly due to the margin pressure felt from the aggressive marketing, and initial costs related to the new stores.

More fruition should be seen given the region’s potential with its growing economies and rising middle classes.

Strong Financials, Robust Balance Sheet

Bonia’s high gross margins of some 61 percent suggests strong pricing ability of its products, probably due to its premium branding which has been effective.

In fact, gross margins have continuously rose over the years from FY09, and maintained near the 60 percent mark.

Return on Equity has also shown an average of 16.7 percent over the past 5 years indicating strong profit generation ability.

Although net margins look like it has been slowing down from the 9.3 percent in FY10 to the near 8 percent level currently (see chart below), this is largely attributable to the costs pertaining the initial set up costs due to the expansionary initiatives Bonia elected to pursue over the years.

Net margins are expected to gradually pick up as the new stores start turning profitable, like that seen in Vietnam and Indonesia.

Its balance sheet is also robust, with a low net debt to equity of some 21.9 percent. Bonia has boasted net cash positions from FY07 – FY12, and marginal net debt to equity of 1.65 percent in FY13.

The sudden increase was very much related to expansionary capex, and at current levels, this is still largely acceptable for Bonia.

Total assets to total liabilities stand at 2.43 times, endorsing the huge backing Bonia commands from its assets base.

Conclusion

Bonia’s current price of RM0.88 (as of 8 Dec’s closing price), is near its one year low at RM0.795.

Compared to its high of RM1.53 seen in July 2014, this represents a 42.4 percent drop in stock price.

Looking at the fundamentals, we believe that the price discount looks appealing. The current price to earnings of Bonia stands at 13 times, with a price-to-book of 2.1 times, and a price-to-sales value of 1 time.

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

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