EU Yan Sang

DMG & Partners Research, May 13

EU Yan Sang's Q3 2013 earnings rose 54 per cent y-o-y to S$8.4 million. Nine-month 2013 earnings of S$13.4 million made up our entire FY13 forecast. Results exceeded expectations, as its Australian operations turned around faster than anticipated with narrowing losses from China. We raise FY13 forecast earnings by 20 per cent and lift our valuation multiple from 14x FY14 forecast to 18x in light of the turnaround.

Upgrade to "buy" with new TP of S$0.80.

Sales in China have yet to grow to an optimal level to be profitable as there are limited products sold on the shelves, due to regulations which prohibit the sale of some flagship products which are deemed drugs and can only be sold at pharmacies and hospitals.

Hence, management intends to expand its range of food products and health supplements to grow sales. Losses in China have narrowed to approximately S$1 million per annum.

During EYSAN's results briefing, investors were notably excited over the recent listing of Beijing Tong Ren Tang in Hong Kong which currently trades at 36x PE. Annual sales of Beijing TRT stand at approximately HK$470 million (S$75 million) compared to EYSAN's larger HK annual sales of HK$660-720 million.

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