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Tuesday, September 05, 2017

BONIA: Signs of Earning Recovery

Background

Bonia Corporation Berhad (“Bonia’”) is an investment holding company, with subsidiaries involve in the design, manufacture, promotion, marketing, distribution, wholesale, and retail of leatherwear, footwear, apparel, accessories, and eyewear for men and women. Bonia was founded in 1974 and listed on Bursa Malaysia in 1994. For more information on the group, go here. If you wish to Bonia products online, go here.

Historical Financial Performance

Bonia’s top-line has been on a steady uptrend until FY2015. Despite the drop in sales in the past 3 years, Bonis’s bottom-line started to recover in FY2017. The earning recovery was brought about by improvement in gross profit margin (“GPM”) as the Group has adjusted its pricing strategy by introducing higher-margin products, reducing discounts given out to customers, in particularly for Bonia and Braun Buffel brands.

 Graph 1: Bonia’s last 19 years revenue & profits

Recent Financial Result

Bonia announced its latest quarterly result for QE30/6/2017 last week. Its net profit rose 61% q-o-q or 103% y-o-y to RM7.7 million while revenue was mixed - up 2% q-o-q but down 4% y-o-y – at RM154 million. As explained earlier, Bonia’s bottom-line improved due to the improvement in gross profit margin as the Group has adjusted its pricing strategy by introducing higher-margin products, reducing discounts given out to customers for new product ranges, in particularly for Bonia and Braun Buffel brands. The higher PBT achieved also due to lower fair value adjustments on investment properties of RM238,000 for the current quarter as compared to last year’s RM2.66 million.

Table: Bonia’s last 8 quarters’ P&L

Graph 2: Bonia’s last 40 quarters revenue & profits

Latest Financial Position

Bonia’s financial position is deemed healthy as at 30/6/2017, with current ratio at 2.77x and total liabilities to total equity at 0.56x.

Valuation

Bonia (closed at RM0.565 on August 30, 2017) is now trading at a trailing PER of 14x (based on last 4 quarters’ EPS of 3.94 sen). At this PER, Bonia is deemed fully valued. However if earning recovery picks up, valuation may become more attractive.

Technical Outlook

Bonia broke its long-term uptrend line, SS at RM0.70 in late 2015. It has since found support at the horizontal line at RM0.55-0.56. While the MACD indicator has hooked up (a positive sign), long-term uptrend will only commence once MACD has gone above the zero line.

Chart 1: Bonia’s monthly chart as at August 30, 2017 (Source: Shareinvestor.com)

The weekly chart is mildly negative, with the MACD indicator just below the zero line. Will the support at the horizontal line at RM0.55 stop the slide? We will have to wait and see.

Chart 2: Bonia’s weekly chart as at August 30, 2017 (Source: Malaysiastock.biz)

Conclusion

Bonia could be a good stock for a recovery play based on tentative earning recovery. It is a well-established company with good management and a long track record for profitable operation and steady sales growth. However the stock is not cheap as the green shoots of earning recovery have only begun to sprout. If you like to get into a beaten down stock and ride on its recovery, Bonia could be a good stock to do so.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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