Beauty Community

Beauty Community

Investment thesis
We have cut our FY13-14 earnings forecasts by 4% and 10%, respectively, to factor in slow SSSG and delays to placing products on the shelves of leading modern-trade retailers. As such, our YE14 target price declines to Bt27.75 from Bt30.50. But despite the cuts, BEAUTY should still deliver a 3-year earnings CAGR of 31%, FY14-16, driven by aggressive expansion, the launch of new concept store (Beauty Market) and more sales through the modern-trade channel. The valuation is attractive—a PER of 22.8x for FY14. Our BUY rating stands.
Slow SSSG to persist in 4Q13
The prevailing weak domestic consumption environment has hurt BEAUTY’s performance more than we expected. Its SSSG has decelerated for two consecutive quarters, from 11.1% in 1Q13 to 4.3% in 2Q13 and to 2.5% in 3Q13. There isn’t any evidence of a recovery yet in 4Q13-to-date. As such, the firm looks unlikely to achieve its FY13 SSSG target of 7% (also our earlier assumption). We have, thus, revised down our SSSG assumption to 5.5%.
Growth from modern trade channel should manifest next year
Sales through the modern-trade channel have increased much slower than we expected. They currently account for only 1% of total sales—far below management guidance earlier this year of 10%—due to delays placing Made in Nature-branded products on the shelves of some modern-trade retailers. However, the firm has achieved its goal of making products available at all targeted retailers and it is introducing five more SKUs of this brand to the channel. BEAUTY also recently launched a fighting brand, called Girly Girl, which comes in small packages at low price points in order to penetrate convenience stores, particularly 7-Eleven. We see huge growth potential, given the extensive network of modern-trade retail stores throughout Thailand.
Expansion on-track
YTD, BEAUTY has opened 25 Beauty Buffet (BB), 16 Beauty Cottage (BC) and two Beauty Market (BM) outlets, bringing the total to 174 BBs, 47 BCs and two BMs. The target of having 180 BBs, 50 BCs and three BMs by YE13 looks comfortably achievable, given that BEAUTY has already secured all its targeted locations. For FY14, the firm targets rolling out 30 BB, 20 BC and 15 BM outlets.
Overseas, the firm currently has three stores (one BB in Cambodia, one BB and one BC in Vietnam) and confirms that it will open another six outlets (one BB and one BC each in Cambodia, Myanmar and Laos) by YE13. Note that BEAUTY doesn’t own its overseas outlets, but sells its products to local operators, who build the stores in the formats of BB and BC. GM is 40-50% versus more than 70% at proprietary stores.