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Eu Yan Sang International Ltd: Consistent performance
 
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Eu Yan Sang International Ltd: Consistent performance

By Lee Wen Ching
Fri, 28 Aug 2009, 10:17:20 SGT

Eu Yan Sang International Ltd’s (EYS) FY09 results were in line with expectations. Revenue grew 7% to S$222.5m while net profit grew 164% to S$13.1m. Excluding non-core items, recurring net profit would have gained 14.5% to S$14.1m. The group’s performance was backed by broad based sales growth across all regions coupled with margin improvements. Going forward, EYS plans to scale back on store expansion and will focus instead on organic growth from existing stores. The group has proposed total dividends of 2.2 S cents (first & final 1.0 cent, special 1.2 cent), translating to a relatively attractive 5.2% yield. While we do not foresee any major price drivers for the stock, we are keeping our HOLD rating intact in view of its consistent dividends. Our fair value estimate has been raised to S$0.40 (previously S$0.37) as we rollover our valuations to FY10.

FY09 in line with expectations. Eu Yan Sang International Ltd’s (EYS) FY09 results were spot on with our estimates. Revenue grew 7% to S$222.5m while net profit grew 164% to S$13.1m. Excluding non-core items such as fair value losses / gains on investment properties in FY09 and FY08 respectively as well as losses from discontinued operations in FY08, recurring net profit would have surpassed our estimates with a 14.5% gain to S$14.1m. The group has proposed total dividends of 2.2 S cents (first & final 1.0 cent, special 1.2 cent), translating to a relatively attractive 5.2% yield.

Broad based revenue growth coupled with margin expansion. EYS posted creditable margin improvements despite a challenging year, demonstrating effective cost management. Gross profit margin improved by 1.0ppt to 51.1% while core net profit margin expanded by 0.4ppt to 6.3%. Revenue grew across all key markets with Malaysia once again leading the pack with a 19% acceleration in sales, with Singapore (+4%) and Hong Kong (+1%) following respectively. Malaysia’s success was attributed to a wider merchandise mix and active CRM programs. Going forward, management expects a moderation of Malaysia’s growth rate.

Cautious store expansion. Having opened 10 new retail outlets in FY09, EYS is guiding for slower store expansion in FY10 due to the murky outlook on consumer spending and expensive rental rates. Instead, its strategy for FY10 is to grow organically by lifting same store sales. The group plans to achieve this by introducing new products and by improving its operational cost efficiency. Nevertheless, we think that it may embark on more aggressive expansion plans should retail rental rates ease in the coming quarters.

HOLD for consistent dividends. EYS has emerged from the recession in good shape. Efficient inventory management boosted the group’s operating cash flow to S$30.8m from S$7.3m a year ago. Cash conversion cycle shortened to 103 days from 109 days, and net gearing posted a marked improvement to just 2.5% as compared to 21.9% a year ago. While we do not foresee major price drivers for the stock, we are keeping our HOLD rating intact in view of its consistent dividends. Our fair value estimate has been raised to S$0.40 (previously S$0.37) as we rollover our valuations to FY10.

 
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