The curious case of Carlo Rino, Bonia and LEAP

When the LEAP market was created and approved last year in Malaysia, it was supposed to be an alternative platform for Malaysian companies - many of them early stage companies to raise funds. Hence, one of the criteria created was that only those individuals who has RM3 million in assets or earns RM300,000 a year and able to prove them can invest into LEAP market stocks. Companies that has at least RM10 million assets only are allowed to trade LEAP market stocks.

I have written about my apprehension on LEAP here.

However, Bonia's management has done something which I will not even be able to think about. My always thought tells me that most bankers will approach the smaller companies and those that are much riskier as these stocks are not going to be liquid anyway. These are what I hear in the market as well.

What Bonia does is that they have pulled out an old brand - Carlo Rino (CR) - from their portfolio and proposed to list them on LEAP. Firstly, CR is not an early stage company. Secondly, this proposal sounds more like a privatisation effort.

Why?

For LEAP market, usually these companies that want to go for IPO - they are under a smaller group of investors and those investors normally will be the friendly parties as only those who can have better access and information on these companies will dare to invest into LEAP shares as it will not be as easy to sell these companies as compared to the normal Main Board and ACE market as anybody can trade. For LEAP only very selected few can trade.

This CR exercise sounds like one. (I am not saying it is)

As it is Bonia has been traded for a while in a much fluid market. If it wants to expand CR, it could have raise more funds in other manners and it has lots of avenue to do so. When CR is ready for IPO in a bigger board, the usual practise is also about offering to its existing shareholders. Split the two businesses - not unusual.

By going to LEAP it is like preventing the current shareholders to buy CR - as LEAP feels like it is only for a special club of investors. A good management is about offering to its current shareholders - now this exercise is NOT.

Isn't it weird? Think of it, if I am already on Main Board, why would I go to a much lower board and let my stocks be illiquid?

With this case, you know what some companies can do? The management pulls out the most promising companies from their listed company (in the name of allowing the shareholders to share the wealth from the exercise). Pull those that has yet to make much profit but highly promising. List them under LEAP - where they can put them with family and friends as shareholders. When they get bigger, list them in the Main Board. Who is the sucker here.

Much food for thought for SC and Bursa to think further when they created LEAP...Are we now allowing the creation of monsters here?

(The above are entirely my opinion and not necessarily represent the true picture)

Too much family involvement

In Malaysia, most stocks are either government controlled, EPF's involvement, or family controlled with many of the family members in the board - uncle, aunty, nephew, niece, sister, brother etc. Bonia now has 6 family members in the Board.

I am just wondering a 29 year old Dato' Sri. Quite an achievement. He must have contributed a lot to the country. Don't see that many in US or Europe except maybe Donald Trump's.

Note that Padini which I am currently holding has that same problem. Someone forgot to tell them these are public listed companies.

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.

Bonia: Take note that the original owner has acquired >17%

To those who read my blog on this, the PNB block is actually in the hands of the founder of the company, CSS. See below, where he and his sibling have formed a company under the name of FTSB to acquire a 17.38% block from unknown parties.

What could potentially happened was as PNB and ASB were selling, these block were actually bought by several parties related to CSS - in multiple nominees so that the 5% substantial shareholding was not triggered. Otherwise, they would not have sold at a price below market i.e. RM2.04. Hence, if my speculation is right, they could have planned this all along. Bonia has not traded much below RM2.00 for this year, once PNB / ASB started to sell sometime around February.

While, I have highlighted this, as I have said often, do not mess with the owner as they have all the tools while retail shareholders do not.

Bonia: Am I seeing something weird? (Updated 26Aug)

Bonia is a company I Like. However I found something weird from its today's announcement. Read below:

Read the one in the red box, indicative price of RM1.80 to RM2.00. What is Bonia's price traded at now? RM2.59. Past few days assuming this news has been leaked it was trading around RM2.23.

I am thinking is there anything amiss in this deal?

I believe that the large chunk of shares that CSS, the controlling shareholder is looking at is from PNB. Look below where PNB is holding after selling major bulk of its shares over last few months. PNB has sold a lot of shares to my counting (there could be cross selling among the PNB controlled groups). Hence, PNB has reduced its holdings over the last few months. Who does PNB's group sell to, there are no reports. The selling was probably via direct trading and not through the market as Bonia's volume over the last few months did not indicate large volume traded.

Only few things I can think of:

• Bonia has become unattractive at its current price of RM2.23 to RM2.59 - don't think so;
• hard to dispose such a large chunk of shares - don't think so. Don't we have CIMB and Maybank who are best at what they are doing with IHH, FGV and Astro recently? That block is only at around RM150 million. I am sure it can be passed to some private equities..I am sure CSS would not want to have another shareholder. Look at what Thai Beverage did to Heineken.
• PNB in need of money? Perhaps, but again why such a big block at such price? I know that this price is to make a General Offer unattractive as its price of RM1.80 to RM2.00 would not lead to minority shareholders disposing to the major shareholder.
• There are news of PNB looking for acquisitions (as in this article by Business Times) in fact but the recent selling by PNB was an action which was otherwise and defied that logic. PNB selling to related or similarly interested parties? As a result of this, Bonia's management has taken action to increase their control? The biggest question is the pricing. It says that CSS is looking to acquire at RM1.80 to RM2.00. How on earth they can get that kind of price when we know that large controlling blocks could be more expensive. Again these strategies are to avoid other shareholders from selling to CSS as that price are deemed unattractive.
  
• Whatever it is, these transactions could have involved third parties to avoid the minorities from selling during the GOs. 
• These news put up by CSS is just a "BLUFF" calling as they are seeing third parties snapping up their shares (potentially dangerous to CSS)?
• Or, someone making money somewhere else? This could be another logic which we cannot discount.

Just to add on - Bonia bought Jeco (a competitor with brands such as Braun Buffel, Renoma etc., 2 years ago): it was a sweet deal (not expensive) and you can basically see how smart the Chairman is - so much for once a tailor!

Bonia: Is there something interesting?

There is a saying, "Better late than never." I have to admit there is a stock with which I always have interest in following - value stock priced (7x to 8x PE), good growth potential (double digit growth), consistently good management decisions and sound business acumen among its top management - Bonia!

However I have to admit that while every time I looked at its potential and financial results there is this sense of unbelieving, but I could not find fault in them. Cashflow is good, P&L and Balance Sheet strong, receivables believable. So what is wrong there? I think probably because when looking at the Bonia's line of products, maybe I am not one who would buy them. That's it. The products are not to my taste. Slap me please then!

Look at its performance:

There is not much you can fault the management. Current market capitalization of below RM450 million and projected profit after tax of more than RM72 million for FY2012. After acquisition of Jeco, besides Bonia's main house brand of Bonia and Sembonia, they now have Braun Buffel, Renoma, Pierre Cardin in the Asian market. While I may not be quite particularly excited over the last 2 brands in the list but Braun Buffel - I feel they have their decision making and focus right i.e. cornering the middle market for leather products. While Bonia is not in the same mould of LV, Prada, Gucci etc., it does have a market and Asian community is CRAZY over branded products. (if you do your google search over 2011's listing for Prada in Hong Kong, you will know why).

So current price RM2.20 is capitalizing Bonia at RM443 million. With that, just look at its half year performance for FY2012. Is this something which will excite you?

Serious Investing!