Revitalising itself to grow consumer appeal
? We turn more upbeat on Bonia’s prospects, as its efforts to revitalise its brands and tailor its goods to current market demands are bearing fruits.
? Leveraging its omni-channel strategy and growing digital presence, Bonia is set to benefit from higher sales and more profitable sales mix going forward.
? FY22-24F EPS raised to reflect higher sales. Our TP rises to RM2.50. Add.
Growing its appeal among today’s consumers
While all retailers including Bonia suffered from Covid-19 and the various lockdowns to combat it, we believe the company has emerged from the challenges stronger. It has made concentrated efforts during this period to improve its long-term prospects, particularly in “re-modernising” itself to win the appeal of today’s consumers. Its efforts include: i) more collaboration works with local and international artistes, ii) launching more new products based on current market trends, and iii) more promotional and marketing activities.
Shifting towards an omni-channel strategy
We are positive on Bonia’s efforts to grow its digital presence, with e-commerce sales (higher margins vs. physical sales) making up 7.9% of its 1QFY22 revenue (0% in FY19). This is thanks to investments on digital marketing and efforts to enhance social media brand presence. Besides utilising its own website, Bonia utilises third-party marketplaces to diversify its online sales channels. Given its efforts in the digital space, we believe Bonia will focus on an omni-channel strategy, rather than solely reliant on offline sales as before.
To benefit from higher consumer footfall and rising spending
Bonia has witnessed a strong rebound in its physical store sales since lockdown measures were eased in 2QFY22, buoyed by pent-up consumer demand. We expect Bonia to sustain its strong sales over the new few quarters (2QFY22 to 4QFY22) backed by: i) festivities, ii) new product launches, and iii) lesser competition (outlet closures and reduced marketing activities since the outbreak of Covid-19) in the relatively same category (“masstige”).
Store enhancements and opening new outlets at strategic locations
Since FY18, Bonia has work on consolidating its brick-and-mortar by closing loss-making and/or less profitable retail outlets and counters. This has enabled Bonia to optimise its resources more efficiently. Yet, Bonia still plans to adds more boutique-type stores (4-6 new outlets in the next two years) especially in strategic locations (high footfall). Besides fetching higher margins, more prominent stores would aid its brand building, in our view.
Reiterate Add, with higher TP of RM2.50
We keep our Add call, with a higher TP of RM2.50, now based on 15x CY23F P/E (10-year historical mean vs. 0.5x FY23F P/V previously), as we expect stronger earnings prospects for Bonia (3-year EPS CAGR of 23.7%). We view Bonia as a strong proxy for a recovery in consumer discretionary spending. Current valuations are attractive at 10.5x CY23F P/E (66.8% discount to consumer discretionary sector’s 28.7x) and 13.4% discount to NTA of RM1.79/share. It has net cash of RM20.3m (10.1sen/share at end-1QFY22).