Beauty Community

Investment thesis

The messages we grabbed from meeting with management at the SET’s Opportunity Day yesterday reconfirms our belief that BEAUTY is the best play in the Thai Consumer sector at the moment. The firm should continue delivering robust earnings growth throughout 4Q14 and FY15. Even looking at the longer view, BEAUTY will remain sexy. Its excellent marketing strategies, good product quality and huge scope for expansion, both in Thailand and in CLMV markets, should empower the firm to maintain its position as one of the fastest-growing retailers on the SET. Our BUY rating stands with a YE15 target price of Bt38.25.

Strong performance continues

Management said that top-line growth in 4Q14-to-date has been in line with the expansion of 48% YoY posted for 3Q14. Beauty Buffet remains the key driver. Some stores, particularly in CBD and tourist areas, experienced sales jumps exceeding 200% YoY. Management guides for GMs of about 70% to continue for both Beauty Buffet and Beauty Cottage. As such, although we expect higher SG&A expenses in 4Q14, the firm should deliver impressive bottom-line growth of 60% YoY for the quarter.

Sales through modern-trade channels still small, but good potential

Sales through modern-trade retail stores currently comprise only 2% of total sales, as there are only a few SKUs available for sale at big retailers (6 SKUs at Tops and 1-2 SKUs at BigC and Tesco). There would be scope for a big jump from sales through 7-Eleven stores. One of a total 11 SKUs of the Girly Girl brand (the brand to be distributed through convenience stores) is currently being trialed for a month at 100 outlets of 7-Eleven. The result should be known by YE14. If the trial proves successful, the brand will be added to the shelves of 7-Eleven stores nationwide. The firm also plans to test another two SKUs at 7-Elevens next year.

Building brand awareness through online and viral marketing

BEAUTY emphasizes marketing its products through social media, as it believes that word-of-mouth has a great influence on users. Its number of Facebook fans has doubled during the last 12 months (now more than 200k likes for both Beauty Buffet and Beauty Cottage), while the number of bloggers reviewing its products increased from 12 in 2013 to 40 currently and the bloggers’ reviews increased from 83 reviews in 2013 to 570 reviews YTD. These numbers suggest that BEAUTY’s products are gaining popularity.