Friday, June 14, 2013

Buying Bonia

It took me a while to make this decision. I have been monitoring this company for more than 8 years but yet could not make a decision to do anything. For people who do not know, Bonia is a local brand - yes it is, fully local.

I have put forward my views on this company before. The founder / owner is a brilliant guy, smarter than many of us who have been to universities, getting our degrees, masters and maybe even PHDs and having worked in all places. Why do I say this? Besides his ability to grow the company, his acquisition of Jeco Ltd was a masterstroke. It was priced at around 5 - 6x PE, and through the acquisition he has sort of eliminated a strong competitor in the same space, Braun Buffel. While Braun Buffel is a nobody in Europe, in Malaysia and Singapore, the brand value is worth something. And it is in the same space as Bonia's leather products - low to mid range. There aren't many mid range leather products in the region if you notice. In fact, I would think there are probably more high range such as LV, Burberry, Coach etc. The growing middle class in this region would be fantastic for Bonia, if it executes its strategies well.

Another right move that he has made, see my article here. This shows that he is not buying anything above the price which he deems to be not fair to him. In other words, he only wants to buy cheap. While doing that, he has managed to increase his holdings of the company. Note that at one point of time, PNB was holding almost the same amount as him (the controlling shareholder), which could be deemed to be dangerous. I would think knowing that they (PNB) were not able to make a break into the holding, the decision was to reduce their stake (purely my speculation). Otherwise, why would PNB buy up to more than 30% at one point of time and later sold?

People, may laugh at him (ya, over the radio, I have heard), but he had never wanted to make a General Offer for Bonia. All he had wanted was to reinforce his control of the company, while at the same time, snap up some shares at a price which he was comfortable at.

Hence, during the period of the offer, Bonia was not buy-able as the controlling shareholder was never willing to buy up the shares if it trades above certain price (more than RM2 - RM2.10). I would think that period is over. Yes, Bonia fell to below RM2.00, but at the same time many other stocks have moved up between 15% to 30%. Bonia was not really moving.

Now on its performance. No point talking about how smart the owner is, if the company is not worthy of buying. We know that he can be aggressive, hence the purchase of Jeco. With the purchase, under Bonia, there are quite a list of brands - Bonia, Sembonia, Carlo Rino, Braun Buffel, Pierre Cardin (Singapore), Renoma etc.

Having done well in Malaysia, Bonia is seeking expansion to Indonesia and Vietnam. Hence do not expect great dividends as this is a company which is expanding - pretty much Parkson like. We are hence seeing growth in revenue as well as decent growth in profits. Its ROE is maintainable at 16% - 18%. These few years, judging by what they have said in their announcements, it is aggressively expanding. I would hence be betting for future growth outlook on this company over the next few years rather than great profit and dividend numbers, now.

Bonia is a company with its own list of brands. It is trading at around 10x PE, if we annualise the results. Market cap is around RM430 million. It has a decent cashflow as well as business reach and importantly a very decent mid-level brand for a fashion retailer.

I have hence bought 3,500 units of this Malaysian company.


Kalasou said...

HI there,
May I ask what method you use to allocate (the % amount) of your cash holding to purchase the share you are confidence? WHY don't you places more CHIP on those share you think will get a FULL HOUSE? Since your hand is hold plenty of CHIP.

felicity said...

No particular method. I would however normally buy more if the fundamental remains while the stock price drops.

panaceaasia said...

The company pays trademark royalty to related parties. This amounted to RM2.5mil for the period under review.

felicity said...

There are several brands not owned by the company such as Balenciaga, Pierre Cardin, renoma. Recently they signed up Bruno magli.

panaceaasia said...

Please refer to interim financial report 31 Mar 2013 on Related Party Transactions.

Payment of Bonia, Carlo Rino and Sembonia trademark royalties RM1.4mil. Payment of men's apparel and payment of Valentino Rudy trademark royalty RM1.15mil.

felicity said...

These are related party transactions which need to be revealed. The RPT are for example transactions by Bonia's overseas subsidiaries which uses the trademark.

See below for better explanation:

DayTrader said...

I think it's a good pick. I have been recommending Bonia too. Took profit at RM2.18, but I think there's more potential upside for this counter, so might go in again if timing's right.

Unknown said...

Hi, felicity. Since the price of raw material for paper remain downturn recently, there will be beneficial to NTPM and MUDA. For u, NTPM better or MUDA?? Thanks:)

felicity said...

For obvious reasons definitely NTPM. Haha. Anyway, I like companies that are able to build a strong competitive advantage in their space. NTPM is one.

reyes430 said...

If we compare the profit margin between padini and bonia, bonia has relatively low margin, is it a concern for you Felicity? Thanks.

felicity said...

If you look at both businesses, in which case I like both of them, they are slightly different. Padini has done very well in its concept store, while Bonia lacked in this area. On the other hand, Padini is getting slightly more competition with brands like Uniqlo, H&M etc, Bonia which is stronger in the leather market such as handbags, shoes are slightly better off in that space.

The concept store business will generally be better off as they are not sharing any margins with the retailers but of course one should be very careful with the management of this and not overly aggressive in this area.

If you notice, there are more and more companies aggressively expanding in their own store and this method of retailing is very much the UK style - hence over time Parkson, Isetan will be affected in this. More and more malls do not really need anchor tenant anymore.

In any case, I like both and I do not think the margin area (in which case Bonia's PBT margin is lower is a case of concern). It could also be partly due to its expansion as Bonia's revenue are much well spread out as compared to Padini which is mainly in Malaysia.

Kalasou said...

This is a Full House on the table!! welldone!