Summary

Research department conducted a briefing to investors of modern beauty, and the company's management presented its interim results in 2011 on December 5. Company strong interim results, in particular, income growth, as Hong Kong business is benefit ed from economic growth, rising consumer spending power, so that turnover rose to HK $ 325 million, an increase of 17.5% yoy. The main source of income from the sale of prepaid beauty packages, such sales reached HKD $ 334.5 million -strong growth and increase of 14.4%yoy.

Business in Asia

The Company in the Mainland has nine service centers in Beijing, Shanghai, Guangzhou and other cities with a total construction area of about 46,000 square feet. Despite the huge mainland market, the market is highly competitive, with the mainland middle class gradually increased, consumers are more service-oriented brand, so that competition in the market trend by the price competition to brand war, survival of the fittest. The face of fierce competition in Mainland, the interim results, the Mainland business recorded a slight loss about 0.72 million Hong Kong dollars which reflected the consumers of Mainland and Hong Kong have different consumption patterns, there are some room for further improvement, we estimated that the Group will change the mainland's business model, decentralized and increase market penetration, in order to build brands.

Business in China accounted for approximately 6% of the whole group’s sales, with suitable strategies, the turnover of the Mainland is still have room for growth. In addition, in 3-5 years the Group will through M&A developing ways to open 50-100 stores, the business outlook is good.

Business in Malaysia and Singapore

Group through the issue of five-year, 2% per annum redeemable convertible notes to pay HK $ 250 million, acquisition of executive director and controlling shareholder of Ms. Tsang Yue’s beauty business in Singapore and Malaysia. The company in Singapore and Malaysia respectively have nine and three beauty services centers, 76,000,and 19,000 customers respectively. When the completion of the acquisition, the Group's service area increased by 10% and increase market share in Asia.

Cost Structure

Group mainly provides beauty services, so nearly half of the total cost is labor costs, in the interim results the labor cost approximately HK $ 157 million. In the interim results 2011, leasing expenses for about 6% of total turnover of HK $ 52 million, even rising rents in Hong Kong macroeconomic situation, the Group's rental expenses to decline steadily, reflecting management's cost control.

Profit highlight

Group's business service-oriented and product sales as deputy. But the operating profit margin is higher in product sales, in the interim results the profit margin of Service and Products sales were 15% and 48% respectively, mainly due to the high cost of our employees, showing the proportion of management strategies to enhance product sales is indeed correct.

In addition, in 2011 interim results, the net profit margin rose to 10%, while net profit recorded a significant increase, reaching 32 million an increase of 3.8 times yoy.

The main business recorded growth, particularly in accounting for a turnover of nearly 67% of the beauty and facial care, an increase of nearly 14%yoy to HK $ 217 million. The slimming business recorded strong growth, up nearly 45 %to 64 million, and occupied total turnover of nearly 20%. The highlight of the interim results was the product sales revenue growth- 20 million proceeds of the business, accounted for only about 6% of turnover seems insignificant, but in fact the business surged nearly 45% year on year. This increase in proven the sales strategy and achieved initial results, the management indicated that the company mainly focus on service, especially in the aspects of beauty and slimming. In the same time providing services to sales, not only can increase revenue, enhance the company's gross margin better, and increase revenue diversification, enhance the profitability of the group during the economics downturn..

Valuation

Modern beauty had abnormal earnings volatility, stock prices and corporate profits for the whole sharp fluctuation. According to Bloomberg data, in past four years an average of 20 times price-earnings ratio, price earnings ratio is lower than the average, we estimate earnings expected to rise to 8.5-times or about HK $ 0.82, 12% of the potential increase.

Industry Comparison

Group's price-earnings ratio is only 7.5 times and 1.74 times of the price-book ratios, which is the lowest for the same industry. However, the Group's gross profit margin and sales growth is in the highest, support the share price. Compared to the same industry, the current price has a great discount.

Financial report

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