Towards Financial Freedom
EYSAN - 3Q13 Exceeds Expectations
EYSAN's 3Q13 earnings rose 54% y-o-y to SGD8.4m with 9M13 earnings of SGD13.4m made up our entire FY13F. Results exceeded expectations, as its Australian operations turned around faster than anticipated with narrowing losses from China. We raise FY13F earnings by 20% and lift our valuation multiple from 14x FY14F to 18x in light of the turnaround. Upgrade to BUY with new TP of SGD0.80.
- 3Q13 exceeded expectations, due to a faster than expected turnaround in Australia and China. While 3Q has traditionally been the peak season for Eu Yan Sang (EYSAN) due to the Chinese New Year, this quarter's performance exceeded expectations boosted by a faster turnaround in Australia as well as narrowing losses from China. Sales from Down Under has more than doubled from SGD3.4m in 3QFY12 to SGD9.3m in 3QFY13.
- Robust growth in Australia. At present, there are 79 Healthy Life stores across Australia, with 27 self-owned and the remaining 52 franchised. Management intends to focus on opening more self-owned stores, which will enable it to capture both wholesale and retail margins. We are projecting 15 new self-owned stores in FY14F with the number of franchised stores unchanged. Losses from Australia are expected to be SGD6m-7m for FY13F and a breakeven could be expected at end-FY14.
- Expanding product range in China. Sales in China has yet to grow to an optimal level to be profitable as there are limited products sold on the shelves, due to regulations which prohibit the sale of some flagship products which are deemed drugs and can only be sold at pharmacies and hospitals. To circumvent these regulations, management will expand its range of food products and health supplements to grow sales. Losses in China have narrowed to ~SGD1m per annum.
- TRT listing sparks interest. During EYSAN's results briefing, investors were notably excited over the recent listing of Beijing Tong Ren Tang (8138 HK) in Hong Kong which currently trades at 36x P/E. Annual sales of Beijing TRT stand at ~HKD470m compared to EYSAN's larger HK annual sales of HKD660-720m.
Source: OSK
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