Target Price S$0.90
Results
• As expected, a weak 1HFY12. There were no surprises in Eu Yan Sang’s (EYS) 1HFY12 results. Net profit fell 79% yoy to S$1.7m due to an S$8.8m provision for its investment in Healthzone Limited. Excluding the investment provision, net profit would have risen 28% yoy. Although 1HFY12 profit accounted for only 42% of our full-year estimate, we expect a seasonally stronger 2H (particularly in 3Q) to lift earnings closer to our estimates.
• Slight margin pressure on store expansion. EBITDA margin slipped 0.4ppt to 13.2%, largely due to store expansion. 2QFY12 saw EYS opening 16 new outlets (5 in China, 2 in Hong Kong, 2 in Singapore and 7 in Malaysia). Looking ahead, management plans to continue with its expansion drive, particularly in China and Malaysia.