Beauty Community

14% above estimate

BEAUTY reported a 3Q14 net profit of Bt81m, up by 68% YoY and 32% QoQ. The figure was 14% above our estimate, due to stronger-than-expected sales and lower SG&A expenses than modeled.

Results highlights

The top-line jumped 48% YoY to Bt375m and SSSG was around 20%, higher than our assumption of 15%. Note that management has yet to finalize the SSS number as it is still calculating it.

Gross margin was 68% in 3Q14, down from 70.2% in 3Q13, due to higher proportionate sales at Beauty Market, which has a gross margin of around 40% versus 70% for both Beauty Buffet and Beauty Cottage.

Although SG&A expenses rose 27% YoY to Bt147m, the jump in sales squeezed the SG&A/sales ratio from 47.9% in 3Q13 to only 41.2% in 3Q14. As such, EBIT margin increased by 402 bps YoY to 26.8% and EBITDA margin expanded by 328 bps YoY to 31.8%.

Outlook

4Q13 should be even stronger, thanks to seasonally heavy spending on cosmetics and a recovery in tourist arrivals—about 15% of BEAUTY’s sales are to tourists. If this strong sales growth momentum continues into 4Q14, SSSG in 4Q14 should be at least 16% YoY, assuming flat QoQ sales.

What’s changed?

Factoring in the stronger-than-expected 3Q14 performance and the outlook, we have upgraded our earnings forecasts by 7% for FY14 and 5% for FY15. Our YE15 target price rises to Bt38.25 from Bt36.

Recommendation

Although BEAUTY’s share price has jumped 49% and outperformed the SET by 42% since we added it to our top BUY list in June, it remains cheaper than its peer average. The stock currently trades at PERs of 31.9x for FY14 and 24.4x for FY15 versus a Retail coverage mean of 34.2x for FY14 and 27.7x for FY15. With the strongest performance in the sector, BEAUTY remains our top BUY.