Beauty Community

Beauty Community

Investment thesis
BEAUTY is now our top BUY in Thai Retail space, due to its concrete growth story, potential for an earnings forecast upgrade and cheap valuation. We expect the firm to deliver a three-year earnings CAGR of 35% versus 22% for the sector as a whole. Although the share price has outperformed the sector by 10% since we initiated coverage last week, the stock still trades at PERs of 31.1x for FY13 and 22.7x for FY14; the peer average is 33.4x and 27.4x.
Expansion on-track
In 5M13, BEAUTY opened 22 new outlets, of which 11 were Beauty Buffet, the remainder Beauty Cottage. The target of opening 50 stores in FY13 looks achievable, given that the company currently has 15 shops under design and fitting. Moreover, management reaffirms targets of opening three outlets in Cambodia, two in Laos and two in Vietnam.
More excited about contribution from modern trade in 2H13
The Made in Nature brand, which is distributed through modern trade channels, should play an important role in driving up the top-line in 2Q-4Q13. The number of sales points increased from 51 at YE12 to 187 at end-March with the addition of BigC and Max Value as distributors in March. BEAUTY plans to have the products available at Tops in June, Tesco in July and Boots in August, which should increase the number of sales points to 237 in 2Q13 and 492 in 3Q13. Besides more sales points, the number of products will also increase. The recent launch of five new Made in Nature SKUs has brought the brand’s total to seven SKUs.
Fighting brand on shelves soon
BEAUTY plans to launch a fighting brand (small packages and low price points) in late 3Q13 or early 4Q13. This brand will initially comprise 3-4 SKUs that will be sold through convenience stores, particularly 7-Eleven. The scope for this brand is huge, given the extensive network of CVSs throughout Thailand. However, we conservatively assume combined sales of Made in Nature and the fighting brand of about Bt100m in FY13, up from only Bt7m in FY12.
Announcement of a new store concept
The firm yesterday disclosed a new concept store under the name Beauty Market—a supermarket for cosmetics and beauty products. These category killer stores will be about 100sq.m and offer a mix of recognized brands, alternative brands, exclusive brands and private labels—up to 300 brands and 9,000 SKUs in total. The pilot store will debut in early 3Q13 and another two are to open by YE13. BEAUTY has yet to set any public targets for Beauty Market, but if these pioneer stores are successful, it may roll out new branches more aggressively next year. Note that we have yet to factor Beauty Market into our model.