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Eu Yan Sang: Finding Strength In Tradition And Innovation
Eu Yan Sang International (EYS) is a name that immediately comes to my mind when Traditional Chinese Medicine (TCM) is mentioned.
EYS started as a single shop front in Gopeng, Perak in Malaysia, providing quality Chinese herbs and medicines. Today, it is a global integrative healthcare and wellness company with 300 retail outlets and 29 TCM clinics across countries.
With nearly 45 years of experience in the business and consistently good performances as it extends its reach, what are some of EYS’ merits?
Dedication Towards Quality And Safety
EYS products are well regarded for its quality and this is attributable to the attention that the company spends on its supply chain. From sourcing of raw materials to the production and distribution, much care has been given to ensure that safety and quality standards are met.
The company’s two manufacturing facilities in Hong Kong and Malaysia are both GMP (Good Manufacturing Practices)-certified and every production process receives full GMP accreditation so quality is assured of.
Positive Results From Expansion
EYS almost doubled its number of retail outlets from FY09 to FY13, up to a total of 300 retail outlets in Singapore, Hong Kong, Macau, China, Malaysia, and Australia.
These expansions in turn translated to higher retail sales year-on-year, as retail revenue rose by 47.9 percent from FY09 to FY13 reaching $257.5 million.
Source: Company
Total revenue and gross profit has also been increasing yearly in the past five years although net profits fell in FY12 due to the expenses incurred for the newly acquired business in Australia and retail expansion in China. Additionally, there was also higher cost pressure in the form of higher rental and headcount from the expansions.
As a result, net margins slipped in FY12 and remained relatively stable from FY12 to FY13, but one could question if the company can maintain or perhaps improve its net margins to match its previous levels prior to the acquisition.
Source: Company
Diversification And Innovation
The acquisition of the Healthy Life chain in Australia was a huge step for EYS to venture beyond TCM products and services, taking a more holistic approach to encompass wellness and lifestyle.
Additionally, in FY13, it has also launched an e-commerce website called my LIFE INC. It offers a range of healthcare and wellness brands previously unavailable in Singapore, in a bid to get a share of the growing local online retail market.
Most notably, EYS has entered into a joint venture with Sichuan Neautus Traditional Chinese Medicine to set up a high-quality TCM decoction pieces (processed herbs) plant, which will make it one of the largest exporters of TCM herbs from China.
The joint venture is expected to improve the company’s margins through the sourcing of more competitively priced raw materials and the strengthening of the upward integration of its supply chain while expanding its wholesale business. Being linked to a trusted source of high-quality herbs and ingredients will also benefit EYS’ branding.
Furthermore, EYS has been in collaboration with various institutes including Nanyang Polytechnic and Chinese University, Hong Kong, in the scientific research of TCM with the goal to propel the TCM industry forward through innovation.
Investments Merits
Strong and reliable brand name which helped built a strong customer base.
Top player in the TCM products and services market. In particular, it is hard to find a close competitor in the local market.
Stable expansion of business with some diversification and innovation, increasing the growth potential.
Investments Risks
The retail business of healthcare and wellness products can be susceptible to risk from the single event of contamination, resulting in a huge loss in consumers’ confidence.
Rising rentals could apply more downward pressure on margins as retail segment grows.
EYS’s Australian operations is only expected to breakeven in FY16, dragging down profit margin.
SI Research Takeaway
With a solid track record that has been carefully built and maintained, EYS looks poised to remain as a major player in the TCM market. Coupled with the growing affluence in the Chinese market and the growing demand for high-quality TCM products and services used in conjunction with Western medicine, it is not hard to see the potential for EYS to grow in the coming years, especially if it manages to turnaround its business in Australia.
However, as seen from the sudden drop in profitability in FY12, staff, rental and marketing expenses pose a real threat to the firm’s bottom line. If EYS is unable to keep these costs under wraps, or regulatory factors such as a mandatory minimum wage kick in, its net profit margin could face downward pressure moving forward.
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