Towards Financial Freedom
Eu Yan Sang - Key Takeaways From Malaysian Roadshow
Our key takeaways from hosting Eu Yan Sang (EYSAN)'s first ever roadshow in Malaysia were: i) expected cross-selling between EYSAN and HealthyLife stores, ii) its new Hong Kong plant will be completed in 2017 to triple the current capacity, iii) it is seeking two more flagship stores in HK, and iv) its Australian op may break even in FY15. EYSAN's valuation is appealing vs Beijing Tong Ren Tang (8138 HK, NR)'s ~35x P/E. Maintain BUY and SGD0.88 TP, on a 19x FY14F P/E.
- Introducing fusion TCM products into HealthyLife. Group has registered the first batch of fusion traditional Chinese medicine (TCM) products to be sold in HealthyLife stores across Australia. These products will not bear the "Eu Yang Sang" brand but another brand name targeting the Western consumers. Over time, we should expect to see cross-selling between Eu Yan Sang stores and HealthyLife.
- New Hong Kong plant to triple capacity. The Group recently raised SGD75m via a bond issuance (five years at a coupon of 4.1%). The proceeds will be used for its new Hong Kong plant as well as a herbsslicing plant in China. The new HK plant is targeted for completion in 2017 and will triple the Group's current capacity in HK.
- Seeking two more flagship stores in Hong Kong. To protect itself against rising rents in HK, Management plans to own at least three flagship stores there. It has already bought one shop in Central and is on the lookout for suitable locations in Causeway Bay and Tsim Sha Tsui.
- Australia op to break even in FY15. The Group's breakeven relies on the number of its self-owned stores. Currently, it has 30 self-owned and 50 franchised outlets in Australia and aims to open 10 self-owned stores per year. Hence, its Australian op is estimated to break even in FY15.
- What sets EYS apart from competitors? Management prides itself in stringent quality controls. It has a unique fingerprinting technology that allows it to identify herbs and match them to its current database of over 500 herbs, to ensure the right herb and grade are used in its products. To Management's knowledge, no other TCM company has such stringent quality controls.
Source: OSK
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