Eu Yan Sang FY08 sales grew 15% to reach S$208.5 million.

EU YAN SANG, one of Asia’s leading retailers of traditional Chinese medicine grew FY08 sales 15% but once-off impairment and loss from discontinued operations dampened net earnings.

Sales for the financial year ended 30 June 2008 grew 15% year-on-year to S$208.5 million, boosted by volume growth across its retail, wholesale and clinic segments.

The best performing geographic region was in Malaysia, which contributed 24% to top line and where 37.5% of Eu Yan Sang’s 144 retail outlets are located.

Of 19 new outlets opened in FY08, 5 were in Malaysia.  Sales per square foot for the Muslim nation, which is populated by about 5.7 million ethnic Chinese (20% of population), grew 34%, compared with 11% for Hong Kong and a flat growth rate for Singapore.

The company declared a first and final tax-exempt cash dividend of 2 cents, amounting to dividend yield of 4% based on yesterday’s close price of 49 cents.
CEO Richard Eu is confident of the recession-proof nature of Eu Yan Sang's TCM business. Photo by Sim Kih
Despite the rising costs of raw fine herbs, gross margins were maintained at 50.1% due to efficiencies gained from opening a manufacturing, R&D, quality assurance and logistics center in Hong Kong in November 2006.

Operating margins however, slid 4 percentage points to 9.1%, affected by rising manpower costs and rental hikes for its retail outlets.  Rental hikes were most severe in Hong Kong, which contributed 45% of Eu Yan Sang's FY08 sales and where 30% of its stores are located.

"We cleaned up our balance sheet for a fresh start in FY09,” said CEO Richard Eu during a results briefing held yesterday.

The company wrote off a couple of businesses that failed to take off, resulting in net profit dropping 67% to S$4.9 million.

These include restructuring charges from the sale of Red White & Pure Pte Ltd and YourHeath Pty Ltd, as well as the impairment of investments in unquoted shares.

Investors may be concerned about how latest reports of economic recession in Hong Kong (2Q08 nominal GDP –1.4% qoq), Singapore (-2.1%) and Malaysia (-1.2%) is going to affect consumer sentiment, but Mr Eu appears confident sales will continue growing as it had done through the previous recessions in Asia.

After all, being positioned in the premium TCM market, sales is recession-resistant on two counts.  Firstly, personal expenditures of well-to-do consumers tend to be recession-proof.  Secondly, regular consumers of medication or health supplements tend to view these like necessities.

Sales grew steadily even during the 2000-2003 recession.

Related story:
EU YAN SANG: 1H08 sales up 23% on aggressive retail expansion

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