CIMB Securities 2015-08-27: Eu Yan Sang Int'l Ltd - In need of stronger remedy.

EU YAN SANG INTERNATIONAL LTD E02.SI

In need of stronger remedy

The disappointing FY15 results are a reflection of the weak discretionary spending environment in EYS’s core markets of Hong Kong, Malaysia and Singapore.
4Q15/FY15’s sales came in at 20%/96% of our full-year forecasts. Excluding the non-recurring items of S$7.5m, the full-year core net loss was S$2.9m vs. our S$8m core net profit expectation.
A DPS of 0.5Scts was declared vs. 2.2Scts in the past years, translating to a c.50% payout ratio.
With fewer Chinese tourists visiting Hong Kong in the near-term, and weak consumer sentiment in other markets, we slash our FY16-17 estimates by 34-53%.
Our target price falls to S$0.25, based on 13.3x CY16 P/E (previously 15.8x but now pegged to low P/E of 2011 GFC period). Maintain Reduce.

EYS’s FY15 revenue fell 4% yoy to S$350m, largely due to strong headwinds in the China and HK markets where sales dropped 15% yoy. Distribution and selling expenses rose 4% yoy, attributable to an increase in company-operated outlets in Australia and the newly set-up F&B operations in Shanghai.
Overall, net profit was S$4.6m, which was boosted by one-off FX gain and revaluation gain on investment properties totalling S$7.5m. Net gearing ratio was 92.5% as of end FY15.

Signs of a turnaround in Australia are starting to show, led by increases in company-operated stores and same-store sales. 4Q15’s sales was up 29% yoy (FY15: +27%) in local currency terms, and 15% yoy (FY15: +19%) in SGD. Net loss for Australia has narrowed from S$7m in FY14 to S$4.5m in FY15, and it is on track to break even in FY16.
The Malaysia market remains muted due to the after-effects of the country’s GST implementation.

Given the reduction in mainland tourists to Hong Kong, EYS has tweaked its business model to bring the products to Chinese consumers and parallel traders through cross border e-commerce initiatives. Should the expansion into the online channels gain traction, this could be a potential re-rating catalyst for EYS. Meanwhile, we advocate investors to switch from EYS to Tianjin Zhongxin Pharmaceutical (TIAN SP, Add).

William TNG CFA | NGOH Yi Sin | http://research.itradecimb.com/ CIMB Securities 2015-08-27

REDUCE Maintain REDUCE 0.25 Same 0.51