Beauty Community

Beauty Community

Investment thesis
BEAUTY is now our best small-cap pick and it looks to be one of the Retail stocks set to recover first from the prevailing weak domestic consumption environment. The slowdown impacted the firm for only a few months and it is now fully recovered. Its current valuation also looks attractive. The share price dive brought down its FY14 PER to only 18.3x versus a peer mean of 23.8x, while its growth profile is much stronger—a 3-year EPS CAGR of 36% versus a peer average of 25.9%. Our BUY rating stands with a YE14 target price of Bt30.50.
SSSG to rebound strongly
BEAUTY’s SSSG is expected to rebound in 3Q13 after weak consumption spending slowed it to 3.6% YoY in 2Q13 from 11.1% YoY in 1Q13. Management said SSSG has picked up since July and the August number should be very strong, partly driven by a post-Ramadan surge in sales. BEAUTY maintains an SSSG target of 7% for FY13, but we think there is some scope for upside to the target, given that 1H13 SSSG was 7.4% and the 2H13 number is likely to be higher.
Expansion on-track
YTD, BEAUTY has opened 16 Beauty Buffet (BB) and 12 Beauty Cottage (BC) shops, bringing the current total to 165 BBs and 43 BCs. As such, the target of having 180 BBs and 50 BCs by YE13 looks comfortably achievable, given that BEAUTY has already secured all its targeted locations. For FY14, the firm targets rolling out 30 BB and 20 BC outlets.
Successful launch of Beauty Market
The pilot Beauty Market (BM) store opened in July and looks successful. Management said that the customer response and sales at BM have so far been in line with the firm’s targets, even though the outlet debuted during a period of slow spending. Note that BM is a supermarket for cosmetics and beauty products. The store has a sales space of about 100sq.m and offers a mix of recognized brands, alternative brands, exclusive brands and private labels totaling more than 300 brands and 4,000-9,000 SKUs. BEAUTY plans to open two more outlets in 4Q13 and another 17 in FY14.
Beauty Market to enhance to firm’s value over the long run
We expect BM to enhance the firm’s value over the long-term. A company with distribution channels to end-consumers and bargaining power to negotiate with suppliers to select only best-seller products to place on shelves will have the highest value in the supply chain. Moreover, Beauty Market will enable the company to better cater to dynamic changes in consumer preferences, as—in contrast to Beauty Buffet and Beauty Cottage—the new shop isn’t restricted solely to house-branded products.