Eu Yan Sang

Eu Yan Sang: Daiwa today issued an unrated note on Eu Yan Sang (EYS).

EYS has 4 main business segments: 1) retail (79% of FY14 revenue), 2) wholesale (16%), 3) clinic (5%) and 4) others (1%). As of 3QFY15, company had a chain of 288 retail outlets (30 are franchise outlets located in Australia under the Healthy Life brand). In addition, it operates a network of 34 TCM clinics, as well as 2 integrative medical centres.

3QFY15 revenue growth was negatively impacted by the 21% YoY decline (in HKD terms) in contribution from Hong Kong, attributed to the continued slowdown in spending and tourist arrivals from mainland China. The company has shifted focus towards the domestic consumer market and expanding its distribution outreach through greater wholesale platforms and e-commerce. Management is also looking at consolidating its operations and relocating underperforming stores to better locations.

Meanwhile, 3QFY15 revenue from Australia rose 28% YoY due to an increase in the number of company-operated outlets and higher same-store sales growth.
Looking ahead, management is keen to expand its presence in ASEAN. It currently has a joint venture in Vietnam which is in the process of securing the necessary regulatory approvals to distribute TCM products.

EYS is trading at a 2015E PER of 24.4x, with a 2015E dividend yield of 3.6%.