Esthetics  International  (EIG)’s  9MFY14 net  profit of MYR11.9m came in within  our  expectations,  at  75.3%  of  our  full-year  estimates.  Key highlights include  improved  margins and  increased contributions from both  its  corporate  salon  and  professional  distribution  segments  as sales  gathered  momentum.  No  changes  to  our  forecasts  at  this juncture. Maintain BUY, with our SOP-based FV unchanged at MYR1.78.

• Largely  in  line.  EIG’s  9MFY14  revenue  of  MYR109.3m  (+8.7%  y-o-y) was lifted by both its corporate salon segment  (+10.9 y-o-y)  and product distribution  arm (+5.9% y-o-y),  on the back of  higher contributions from its  new  and  existing  outlets  in  Malaysia  and  Singapore.  Profitability improved too with EBITDA margin at  16.4% (+810bps), buoyed by better economies  of  scale  and  increasingly  stringent  control  on  its  operating expenses.  All  in,  9MFY14  core  earnings  more  than  doubled  y-o-y  to MYR11.9m.  On  a  quarterly  basis,  3QFY14  revenue  was  recorded  at MYR37.8m  (+4.6%  y-o-y;  +0.7%  q-o-q),  while  core  earnings  surged 65.2% y-o-y and 17.9% q-o-q to MYR4.7m.
• 4QFY14  looking  good.  With  the  results  coming  in  largely  in  line,  we make  no  changes  to  our  FY14F-16F  estimates.  We  estimate  4QFY14 core  earnings  at  around  MYR3.8m-4.2m.  On  a  side  note,  we  expect management to declare  a final DPS of 3.0 sen  upon  its  4QFY14 results release, assuming a 30% payout ratio. That said, we do not discount the possibility of a bumper dividend should management decide to reward its existing  shareholders,  in  view  of  the  company’s  recent  share  price strength  and  strong  net  cash  position  of  MYR59.4m  (MYR0.30  per share) as at Dec 2013.
• Maintain BUY.  With the results largely within expectations, we reiterate our  BUY  recommendation  on  the  stock,  with  our  SOP-based  FV unchanged  at  MYR1.78.  We  continue to  like  EIG  for  its:  i)  established partnership  with  the  reputable  Dermalogica  skin  care  group,  ii) committed  family-led  management,  and  iii)  decent  earnings  growth supported by a sturdy balance sheet.

Financial Exhibits

SWOT Analysis

• Established regional presence with a strong distribution arm in the beauty and wellness industry

Company Profile
Esthetics  International  Group  (EIG)  is  the  exclusive  distributor  of  Dermalogica  skin  care  products  in  Malaysia,  Indonesia,  Thailand, Hong  Kong,  Singapore,  Brunei,  Cambodia  and  Vietnam.  The  group  also  owns  and  operates  skin  care  salons  and  retail  kiosks  in Malaysia, Singapore, Hong Kong and Thailand.

Recommendation Chart

Source: RHB