BONIA Corporation Bhd saw a downgrade to sell from Affin Hwang Capital as the research house remained cautious about the fashion brand’s outlook despite improving margins in recent quarters. The downgrade also saw a lower target price of 84 sen from a previous RM1.05.
“While we acknowledge that margins have improved in recent quarters owing to its ongoing store rationalisation process, the sales momentum remains lacklustre,” said Affin Hwang analyst Chow Wei Nien.
Chow noted that Bonia’s revenue declined for a fourth consecutive year in its 2019 financial year, and topline is expected to remain under pressure moving forward, as sales momentum is likely to be subdued in times of weaker consumer sentiment, made worse by the proliferation of e-commerce portals.
Adding to its woes, the ongoing Wuhan coronavirus outbreak may also dampen the anticipated sales boost from tourist spending in conjunction with Visit Malaysia Year 2020.
“We understand Bonia also faces stiff pricing and market-share pressure from key competitors such as Michael Kors and Coach which run frequent discounts on their merchandise,” added Chow.
Bonia’s standard bag costs about RM945 on average, whereas a comparable Michael Kors bag will set customers back about RM669 after a discount. Braun Buffel and Coach seemed broadly on par with an average pricing of about RM1,600.
The group’s store rationalisation initiative also saw closures of 60 boutique stores and 249 consignment counters in FY19. Chow noted that further store closures are still on the cards for FY20, particularly for the Sembonia brand, though on a smaller scale.
“While we note there was a net opening of 19 outlets in 1QFY20, this largely resulted from the sub-division of certain brands/merchandises previously recorded as a single counter,” said Chow.
Earnings estimates for FY20 to FY22E were reduced by between 4% and 10%, taking into account weaker consumer spending, the proliferation of e-commerce platforms, and slightly higher advertising and promotional spending going forward.
“All in, we are concerned that the ongoing restructuring and A&P measures may be futile in sustaining its brand appeal amidst a challenging retail landscape,” said Chow.
At the noon close, Bonia’s shares were last done at 91.5 sen, down 1.5 sen, with 8,700 shares changing hands. – Jan 31, 2020
