eu yan sang - learning resources by investcoach – shares … · 2013-08-11 · company background...
TRANSCRIPT
Eu Yan Sang
Jollene Han
Kenny Ong
Disclaimer and Declaration
The objective of the presentation is for educational
purposes. The full content of the presentation is for
illustration purposes only and should not be used as
investment recommendations. AB Maximus and its
presenters are not responsible for all investment
activities conducted by the participants and cannot
be held liable for any investment loss.
The company and presenters may have personal
interest in the particular shares presented.
Agenda
Company Background
Financial Highlights
Valuation
Risk Factors
Conclusion
Q & A
Company Background
Eu Yan Sang International Ltd (EYS) is a Singapore-
based healthcare company. It is involved in:
Sourcing, manufacturing, wholesale and retail
sales of Traditional Chinese Medicine (TCM)
products
Provision of traditional Chinese medical
consultation, treatment and integrative medicinal
services through its Clinics
Provision of rental of premises, sale of food and
beverages (Others)
Turnover by business activities
Retail
83%
Whole
sale
10%
Clinics
6% Others
1%
Retail
81%
Whole
sale
13%
Clinics
6% Others
0%
FY2010 FY2011
Retail outlets in geographical
locations
Number of Outlets FY 10 FY 11
China 3 4
Hong Kong 46 51
Macau 2 2
Malaysia 71 79
Singapore 40 49
Total 162 185
Turnover by geographical
location ($m) Singapore,
$67.70
27%
Malaysia,
$77.40
31%
Hongkong,
$106.80
42%
Financial Highlights
Retail revenue increased by 11% to S$219.8m
Remained largest biggest segment contributing to 82.5% of total revenue
Top selling products continue to demonstrate steady growth
Bottled Bird’s Nest
Bo Ying Compound
Bak Foong Pills
Lingzhi Cracked Spores Capsules
Essence of Chicken
Introduce about 10 products every year to diversify and increase revenue
Financial Highlights
Wholesale revenue decreased by 10% to
S$28 million in FY2011
Mainly due to slower stock replenishment
by wholesalers.
Financial Highlights
Clinic revenue improved 11% to S$15.9
million
The group added four clinics to bring the
total number of clinics and integrated
medical centres to 25 as at 30 June 2011
No plans in the Annual Report that points
that EYS wants to further expand its
clinical segment
Financial Highlights
Business segment Change in revenue
Retail 11%
Wholesale 10%
Clinic 11%
Industry Analysis
TCM is a form of Traditional,
Complementary and Alternative
Medicine (TCAM)
Although the World Health Organization
states that usage of TCAM is inversely
correlated with wealth, trends indicate
that TCM is here to stay
Industry Analysis
Developments
1. Proper regulation of materials,
practitioners and researchers
2. Garnered interests of firms
3. Adopted into medical treatments
4. High Usage
5. Increase in number of extracts obtained
from herbs. However, extracts may not be
able to substitute herbal remedies
Source: Evidence-Based Complementary and Alternative Medicine
Industry Analysis
Source: The Straits Times, Singapore Medical Journal, IBM, WSJ
Industry Analysis
Most TCM products are sold as over-the-
counter pharmaceuticals
TCM sales make up about one-third of
Asia Pacific OTC pharmaceuticals market
Grew at a compounded annual growth
rate (CAGR) of 4.4% from 2006-2010
Expected to decelerate and grow at a
rate of 4.2% from 2010
Source: Datamonitor 360
Industry Analysis
TCM accounted for about half of
Singapore OTC pharmaceuticals sales
EYS is the leading player and has a
market share of 12%, before Johnson &
Johnson (8.6%) and Bayer AG (8.2%)
Grew at a CAGR of 6.3% from 2006-2010
Expected to decelerate and grow at a
rate of 4.9% from 2010
Source: Datamonitor 360
Industry Analysis
Retail sales index of medical goods &
toiletries in Singapore (2010 = 100)
2007 2008 2009 2010 2011
Index 77.7 84.6 90.2 100.2 109.9
0
20
40
60
80
100
120
Source: Statistics Singapore
Industry Analysis Value of retail sales of Chinese herbs and
drugs in Hong Kong
Expected CAGR of Chinese market is 6.3%
2007 2008 2009 2010 2011
YOY change 4% 1% 10% 14%
HK$ million 3687 3822 3856 4253 4850
0
1,000
2,000
3,000
4,000
5,000
6,000
Source: Census and statistics department, Hong Kong
Industry Analysis
In 2010, the Malaysian pharmaceutical
industry was estimated to be worth RM5
billion
This industry is expected to experience a
Compounded Annual Growth Rate
(CAGR) of 9.5% for the period 2009-2014
By the end, it should be worth RM5.4
billion
Source: PhaMA Industry Fact Book 2012
Valuation $M 2009 2010 2011 2012F 2013F 2014F 2015F
Retailing
Bottled Bird’s Nest 21.80 24.60 26.90 29.89 33.20 36.89 40.98
Bo Ying Compound 25.40 23.10 25.00 25.00 25.00 25.00 25.00
Bak Foong Pills 14.70 13.30 15.10 15.00 15.00 15.00 15.00
Lingzhi Cracked Spore Capsules 8.80 9.00 9.70 10.19 10.70 11.24 11.80
Essence of Chicken 6.10 8.60 9.20 9.84 10.53 11.26 12.05
Others 97.30 119.00 133.90 157.21 184.59 216.73 254.46
Total 174.10 197.60 219.80 247.13 279.02 316.11 359.29
Wholesale 32.60 31.10 28.00 25.96 24.07 22.32 20.69
Clinic 14.30 14.30 15.90 15.90 15.90 15.90 15.90
Others 1.50 1.70 2.60 1.50 1.50 1.50 1.50
Revenue 222.47 244.72 266.33 290.49 320.49 355.83 397.38
Profit After Tax 13.07 19.29 24.94 22.39 24.70 27.42 30.63
Net Profit Margin 5.9% 7.9% 9.4% 7.7% 7.7% 7.7% 7.7%
Valuation Based on FCFF method
Under Retailing Based on trends
If no trend present, based on average sales
Sale of Essence of Chicken excluded the exception
Under wholesale, constant decrease due to cannibalism of distributors by opening more stores
Under Clinic, based on assumption that no new clinics will be opened
Under Others, negligible
Trading Data
52 Weeks Trading Range $0.60 - $0.83
Avg Volume (3mths) 110,279
Market Cap $289.28mil
WACC
Real Risk Free Rate 1.7%
Equities Market Return 10.7%
Beta of stock 0.69
Cost of Equity 7.9%
Cost of Debt 2.3%
WACC 5.1%
Valuation
2012F 2013F 2014F 2015F
FCFF $22 $25 $27 $31
Terminal Value
(FCFF2015/r-g) $395
FCFF $22 $25 $422
TV =
31
5.05+3.00( ) - (0.03)
FCFF
WACC+ AdditionalPremium( ) - (Growth)
=
Valuation NPV ($m) $407
Debt ($m) ($120)
Cash ($m) $39
FCFF Due to Share Holders ($m) $326
No. of Shares (mil) 438.882
Fair Value per Share $0.74
Valuation (P/E
Comparison) Company P/E
Eu Yan Sang 15.77x
Tianjin Zhongxin Pharmaceutical Group Co 27.41x
Luye Pharma Group Ltd 17.28x
Haw Par Corporation Limited 15.2x
Beijing Tongrentang Co Ltd 40.83x
Mayinglong Pharmaceutical Group Co Ltd 35.5x
Pharmesis International Ltd N.A.
Average P/E (without Eu Yan Sang) 27.24x
Estimated EPS 0.0503
Fair value of EYS 1.37
Source: Reuters
Valuation (P/E
Comparison)
Most of the companies are listed in China
Extremely high PE ratios and ranges from
15 to 400
Use FCFF instead
Valuation
Fair Value Using FCFF $0.74
Fair Value Using P/E $1.37
Current Price $0.66
Risk Factors
Upside risks:
Approval to enter into the vast China Market
Approved in the Netherlands, entered into the Western market
Downside risks:
Lemon Law
Foreign currency translation losses
Q and A?