Bonia seeks strategic alliances for growth

14.04.14 / Author: Wei Lynn Tang, The Edge Financial Daily

Institutionalisation of shareholdings boosted its share price in the past year.

KUALA LUMPUR: Bonia Corp Bhd has had a good run in its share price in the past one year. From having traded at just RM1.90 a year ago, the counter had risen 186% to close at RM5.50 last Friday, giving it a market capitalisation of RM1.1 billion.

A major reason for this rise apart from the group’s internal consolidation process which has improved profit margins is said to be the increased level of institutional shareholdings in the company.

Currently, institutional shareholdings in Bonia stand at 40% compared with an estimated 15% to 20% a year ago. For instance, Milingtonia Ltd has emerged as one of the substantial shareholders of Bonia in August 2013, and currently holds a 7.25% stake in the group. Milingtonia is said to be linked with Creador Group, a long-term private equity firm focused on growth-orientated businesses and currently holds a 7.25% stake in the group.

Group finance director Chong Chin Look told The Edge Financial Daily that Creador is deemed a strategic investor as it has introduced Bonia to the management of several shopping complexes in Indonesia, and has also assisted in the market survey of Bonia’s branding in Indonesia.

The institutional shareholdings in Bonia are also more diverse compared with several years ago, considering that Permodalan Nasional Bhd (PNB) once held a dominant 32.99% stake in the retail group in June 2011. PNB has now ceased to be a shareholder of Bonia, having divested its stake gradually to other institutional funds including Creador.

Moving forward, Datuk Albert Chiang, group managing director of Bonia, said the group is open to strategic partnerships but cautious in picking the right partner.

“We’ve always open to strategic alliances [as we look] for synergies that can propel us further, beyond…Southeast Asia, such as China or even the Middle East eventually,” said Chiang.

He said Bonia has been approached by a few parties, be it for a strategic alliance or a stake in Bonia, but the group has yet to make any decisions.

The Chiang family, through Bonia Holdings Sdn Bhd, Freeway Team Sdn Bhd, and family members, collectively own half of the group. Should the group find a suitable partner, the family may have to divest part of its stake.

CIMB Research has an “add” call on the stock with a target price of RM8.11, while AmResearch has a “buy” call on the stock with a fair value of RM5.40.

Bonia moves forward with strength

Group on the right track to improve net margins to 12% from 7%.

Bonia Corp Bhd is not resting on its laurels after reporting better first-half results, with margins improving considerably as a result of the group’s internal consolidation exercise over the past two years.

In an interview with The Edge Financial Daily last week, group managing director Datuk Albert Chiang said Bonia is positive in keeping up with its earnings trajectory and is on the right track in terms of its branding and pricing strategy.

“There are a lot more things which could [still] be done we look towards the long term and expand. We haven’t maximised our potential,” said Chiang.

For one, Chiang said the group is upbeat on the prospects from Asean, particularly Indonesia and Vietnam. Excluding Malaysia and Singapore, sales from Asean contributed 5.8% to group revenue for the first six months ended Dec 31, 2013 of financial year 2014 (6MFY14). Indonesia accounted for 3% of that figure.

“Indonesia itself will keep us busy for another five to eight years to come, or even 10 years, as long as their political stability is there,” Chiang said, adding that sales turnover from Indonesia has been increasing 30% year-on-year (y-o-y).

Management expects its overseas revenue contribution (outside of Malaysia and Singapore), which includes Asean, Saudi Arabia, Taiwan and Japan, to increase to 10%, from 7.6% currently. Malaysia and Singapore accounted for the bulk of the group’s revenue at 92.4%.

To put “goals” in perspective, Chiang said the group should be able to have double-digit revenue growth for FY14 ending June.

“The group also has a vision to achieve 12% in profit after tax (PAT) margin by FY15/FY16,” said Chiang, though he admitted that this is more possible to achieve than the vision of hitting RM1 billion in turnover by FY15 – as crafted in the group’s “Vision 2015”.

For 6MYF14, Bonia’s net margin stood at 9.4%, as it reported a net profit of RM33.2 million on RM354.7 million in revenue. In FY13, net profit came in at RM41.15 million on revenue of RM632.33 million, indicating a net margin of 6.5%.

“All the measures that we are embruing on now are to improve our margins. Through the consolidation exercise [of] over counter and boutique operations, we strive for quality sales [to] enhance the power and perception of our branding,” said Chiang.

Bonia’s consignment business segment operates 1,027 counters and contributes 50% to group revenue. The boutique segment operates 164 boutiques, but contributes 36% to group revenue. Export/outright segment contributes the remaining 14% of revenue.

“Eventually we would want to reach 50:50 in terms of revenue contribution from our boutiques and [consignment] outlets, so we are not overly dependent on just one segment,” said Chiang.

Though boutiques require higher initial set-up costs, Chiang said the group is able to control the image of the brand better, plus this segment is able to offer slightly higher gross profits than the consignment business, which tends to give out customer discounts. Consignment business rakes in about 60% in gross margins.

“[That said], in general, both business segments are equally important to us, we still need both,” Chiang noted.

Bonia group finance director Chong Chin Look said the group’s overseas expansion plans and focus on seeking better profit margins through increasing boutique operations would be able to balance the slowdown in retail sales, if any, from the local front.

“Our business is quite flexible, simply because Bonia, Sembonia and Carlo Rino are our house brands; and such, we can tube to varying market situations better,” noted Chiang, citing an example where the group has the leeway to offer promotions when the market becomes “soft”.

Bonia, Sembonia and Carlo Rino collectively contribute 65% to group revenue, while Braun Buffel and licensed brands contribute 20% and 15% respectively.

“[Additionally], our target market is the higher income earners, not those who are 100% dependent on salary,” Chiang said.

On this note, the group sees minimal impact from the goods and services tax (GST), and if any, it would have a short-term three month impact on the group’s FY15.

“I don’t think the 6% GST will have an impact on our business, as we’re not selling high ticket items. Plus, tourists represent quite a big chunk of our business clientele, and they would be able to claim the input tax credit back, thus they would not feel so much of the ‘pinch’,” said business development general manager Geoffroy de Drouas.

Tourists currently represent an estimated 15% of Bonia’s client base, excluding the export market.

On competition, Geoffroy pointed to the likes of Coach, Mulberry, Furla, Michael Kors, and MCM. The group has eliminated its main competitor, Braun Buffel, by acquiring a 70% stake in its principle, Jeco Pte Ltd in December 2010.

Chiang said Bonia is benchmarking against the international brands, in terms of quality and perception. The group spends about 3% to 5% in advertising and promotions (on revenue) yearly, and will continue to invest to enhance its brand perception.

“[That said], I think slower growth is anticipated, because our [revenue] base is getting bigger y-o-y. Thus to grow stronger at a double-digit rate, we would have to expand further overseas,” said Chong.

In the past five years, Bonia’s revenue rose from RM360.1 million in FY10 to RM632.3 million in FY13. PAT also rose from RM33.2 million to RM41.15 million in the same period.

The past two years of consolidation for the group have seen it making better profits now.

“Some of the internal consolidation we have done in the past two to three years include cutting down or removing poor performing counters for our Bonia brand. In Braun Buffel’s case, we have done the same and now the brand is operated solely through stand-alone boutiques in Malaysia. We have let go of some sales, but note that it’s for image-building and to improve our profit margins,” said Chong.

Chong said the group reported lower PAT margins of 7.1% for FY12 and 6.5% for FY13, as it was affected by impairment in properties, write-offs from setting up costs in Vietnam and Indonesia and so on. Impairments for FY12 and FY13 stood at RM11.3 million and RM10.1 million, respectively. Going forward, the worst in impairments is now over, he said.

With brighter times ahead, management guided that there is no intention currently to pay out higher dividends as it focusses on its expansion plans overseas.

Plans in the pipeline include the opening of its first Bonia boutique in Phnom Penh, Cambodia, in June and two more new boutique openings in Indonesia.

The group’s third factory in Melaka will also be operational by year-end, which would boost capacity by 25% to 30% and enhance the groups’ earnings.