Eu Yan Sang

Eu Yan Sang (EYS): 2QFYJun12 results, weak as expected.
Posted a net loss of $2.7m, arising from an $8.8m write off after its 16% owned Australia-listed Health Zone (HZL) went into receivership in Nov ’11. Excluding the hit, net profit would have come in at $6.1m.

Revenue at $69.8m was up 9% yoy, on broad-based revenue growth from all its main business segments – Retail TCM, Wholesale TCM and Clinic TCM.
Gross margin was maintained at 51.4%.

In the quarter, EYS added 16 new retail outlets. Despite the uncertain economic outlook, the group aims to have at least 20 new outlets in China by Jun ’12. Notes its business in China is starting to stabilize, and losses have declined since opening more stores.
EYS also said it intends to acquire some of HZL’s assets and undertakings for ~$6.7m. The acquisition is conditional upon the transfer of certain franchise contracts, by a Feb 17 deadline.

UOBK expects a seasonally stronger 2H (particularly in 3QFY12) to lift earnings. Keeps at Buy with TP $0.90, based on 15.9x P/E or 20% discount to its TCM and health supplement peers.
The stock trades at 15.2x P/E, 2.6x P/B.