Towards Financial Freedom
Eu Yan Sang - A Dent In Seasonally Weak 4QFY13
EYSAN's 4QFY13 recurring profit of SGD1.3m (-42% y-o-y, -85% q-o-q) was below our SGD3.0m estimate as the better margins were mitigated by a higher loss in Australia due to the opening of new stores in 2H13 and inventory write-offs. We expect the Australia unit to post a smaller loss in FY14 and a profit by FY15, helping to lift profit by ~35% per annum. Maintain BUY, at a higher DCF-derived SGD0.92 TP.
- 4Q13 topline grows 11%. 4Q13 revenue came in at SGD77m, driven mostly by a 23% surge in Hong Kong sales to SGD34m, buoyed by its strong retail and wholesale businesses. We note demand in the territory was supported by a stable domestic market that benefited from increasing Chinese tourist arrivals, as well as satisfactory performance from its first retail store on board a cruise ship under the Star Cruises line. Growth in Hong Kong was partially offset by a 4% dip in Singapore contribution to SGD17.6m on cautious consumer spending. Sales in Australia rose 15% to SGD9.0m, or 22% growth in local currency terms.
- GPM was stable at 52.0%, better than our expected 49.2%. This suggests that EYSAN's core markets' GPMs rose to 52%-54%, sufficient to compensate for Australia's lower profitability at ~40% GPM. Operating margins widened ~0.7ppt on better cost control. Its reported operating profit dipped 1% to SGD24.1m, and would have improved by 18% if Australia and China are excluded. We note that the Australia unit saw a loss of SGD2.8m in 4Q13, or SGD9.0m for the full year, on the opening of seven new self-operated stores in 2H13, and inventory write-offs.
- Introducing FY15 and quarterly estimates. We keep our FY14F profit estimates largely intact at SGD20.2m, or +37% y-o-y, and expect earnings to surge 34% to SGD27.0m in FY15. We are also projecting for earnings to recover from a low base a year ago to SGD2.3m in 1Q14, and grow by 21% y-o-y to SGD5.7m in 2Q14.
- Maintain BUY at higher SGD0.92 TP. We switch to DCF valuation to better reflect the group's long operating history and 10% profit CAGR since 2001. We assume a 9.1% WACC and terminal growth rate of 3%. This lifts our TP to SGD0.92 (previously SGD0.88). Maintain BUY.
Source: OSK
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