EU YAN SANG - EU YAN SANG (OSKDMG)

BUY

Price S$0.73

Previous S$0.99

Target S$0.94

EYS reported 1QFY12 PATMI of S$4.5m, up 9% YoY on the back of a 5% rise in revenue to S$60.7m. Revenue growth was broad based and if not for the stronger SGD, revenue and PATMI would have grown by 12% and 21% respectively in local currency terms. During the quarter, the Group added four outlets bringing total number of outlets to 189, in addition to 25 clinics. It should also be noted that the Group opened its first outlet outside Guangdong province in China as it plans to venture out of the province into other parts of the country more aggressively. We continue to like the stock as it enjoys resilient sales from a growing affluence of customers in its key markets. We raise our FY12F earnings by 5% but derive a marginally lower TP of S$0.94, pegged at an unchanged 15x FY12F earnings due to a dilution in EPS from the exercise of employee stock options.

Growth across all markets. Retail sales posted a 5% YoY growth to S$48m with top selling products continuing to fare well. Wholesale TCM sales also grew 6% YoY largely due to stock replenishments by wholesalers. Its clinics posted a 10% YoY growth. Only it’s “other income” category which includes revenue from F&B and rental income dipped 3%. In terms of geographic breakdown, sales climbed in all countries led by Hong Kong which registered double digit growth of 22% in local currency terms and 10% in SGD.

Opens first store out of Guangdong province. The Group added four new stores for the quarter including its first store outside Guandong province, China. It now has five outlets in China and plans to add another three by year-end bringing total store count to eight. As at 30Sept11, the overall Group has 189 retail outlets and a chain of 25 clinics.

Valuation. We raise our FY12 earnings by 5% to S$27.5m as we expect lower operating expenses to bump up margins. We reiterate BUY on the stock pegging it at an unchanged 15x FY12F multiple, but derive a marginally lower TP of S$0.94 stemming from EPS dilution from the exercise of stock options.