Thursday, February 14, 2013

Eu Yan Sang

Eu Yan Sang (EYS): plans to add its signature herbs to Western health supplements such as vitamins to broaden its customer base. The company, which bought the assets of Australia's Healthzone a year ago, will produce the supplements under that unit's brands and infuse them with Chinese herbs used to fight colds and fevers. The products will be introduced in Australia in the next two months and sold with herbs and other Chinese health products such as bird's nest. The company is among an increasing number of businesses in Asia that are taking local products to Western markets, a precedent example being Osim, which sells its products through its Brookstone stores in the US. The company decided to branch out into the Western products because of its expansion into the traditional clinics, where mgt believes their medicine practitioners are able to add value to the products it sells with their knowledge and expertise. Notes, in the Western markets, health supplements are increasingly becoming commoditised, with the rising sale of vitamins and other supplements in supermarkets. Believes if it can succeed with this business model in a Western environment, the co could have a global business. DMG observes that health supplements retailer GNC has also added Chinese herbs to its nutritional offerings and "sales seem to be brisk". EYS acquired the Australian assets that included 100 Healthy Life stores after that company fell into receivership. The business now accounts for about 10% of, which also reflects the proportion of its Western products now, a segment that's set to grow. EYS also plans to expand its reach among non-Chinese speaking customers in the region, and will open its first store in Vietnam this year, a market mgt believes is similar to China because of the local familiarity with traditional medicine. It is also considering adding stores to SE Asian markets including Indonesia and Thailand later. EYS is the largest seller of traditional Chinese medicine in Asia outside of China. The century-old company opened its first shop in Malaysia in 1879 and has expanded to 300 retail outlets in markets including Hong Kong, China, Macau and Australia. It also has 28 clinics or medical halls offering treatments for fertility, stroke, arthritis and other ailments. EYS last week reported a 2QFY13 net income of $4.7m, rebounding from a $2.7m loss after a writedown for its Australian acquisition. Gross operating margin was little changed at 52% as a 12% climb in sales was offset by rising rental pressures. The stock trades at 14.6x P/E, 2.2x P/B.

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