Beauty Community

Earlier this week, we hosted a group meeting for local institutional investors with BEAUTY management. Mr Surapon Phetklueng, Executive Director of Finance & Accounting, and Ms Sirikan Phattiveranon, Executive Director of Sales, were the speakers. Overall, most of the investors were impressed with the firm’s strategies and operations as well as management knowledge and ability to manage and deal with problems. Although there will be a hiccup with Beauty Market, we believe the company will still deliver strong sustained growth for the next several years. Our BUY rating stands with a YE15 target price of Bt36.

Robust sales momentum continues

3Q14 SSSG is likely to exceed the 15% posted for 2Q14 and also beat our model. Management said that the robust sales were driven by more new product launches and a CRM program. This year, about one-third of total products have been replaced with new SKUs, a bigger proportion than the one-fourth replaced last year. Typically, new products (even re-packaged current items) can attract customers much more than old products. 

With regard to the CRM program, it effectively increased the proportion of repeat customers at Beauty Buffet from 29% last year to 36% YTD. Since the average basket size of these loyalty customers is about Bt800—70% higher than for non-members—the higher the membership, the bigger the mean basket size of total sales. Moreover, CRM helps BEAUTY to better cope with dynamic changes in customer preferences; the firm can launch the right products to meet demand for each season, demographic and geographic area. BEAUTY plans to be more aggressive with its CRM program next year, so SSSG should remain robust.

Sustainable growth

Besides SSSG, expansion is another driver. BEAUTY plans to increase its sales space at a rate of 20-25% annually over the next five years. We like not just this aggressive expansion plan, but also management’s awareness of the need to prepare the infrastructure and resources to support it. A new warehouse (which will boost efficiency and could handle expansion over the next 10 years) and training center (which will enhance salespeople’s skills) will be completed in late 2015.

Beauty Market expansion temporarily on hold 

Management said the performance of Beauty Market has missed the in-house projection because the targeted customer groups visit stores less regularly than had been assumed. There is apparently an incongruence between the store ambience (an upmarket look) and the product offerings (a focus on mid range customers), so the firm will tone down the ambience to meet the preferences of its targeted customers. Branch expansion of the store brand will remain on hold until the issue is resolved, which should take three to six months.