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Why Did Net Profit Decline 48% at Eu Yan Sang International Ltd.?

Eu Yan Sang International Ltd. (SGX: E02), one of the largest Traditional Chinese Medicine (TCM) groups in the region, released its results for the first quarter ended 30 September 2014 on Wednesday.

Net profit almost halved from S$1.4 million last year to S$0.74 million in the latest quarter, mainly due to higher operating expenses and taxation. Operating expenses increased 9% year-on-year largely due to increased staff and rental costs, and higher expenses in new markets, while taxes went up by 4%.

The top line performed well. It saw a 4% year-on-year increase to S$83 million, mainly due to higher revenue generated from Singapore, Australia, and Hong Kong as a result of better sales through promotions, increased store count, and higher sales through distribution channels.

Revenue from Australia rose the most out of all the geographical locations the firm operates in. Revenue from the country went up 24% largely due to the increased number of company-operated outlets and better same-store sales.

Mr Richard Eu, Group Chief Executive Officer, was elated about the performance Down Under. He said, “Our sales in Australia have continued to grow consecutively since we acquired the Healthy Life Group in February 2012. It is particularly encouraging that Australia’s quarterly sales for 1QFY2015 has reached A$10.6 million, crossing the A$10 million level for the first time.”

Despite the drop in net profit, cash flow from operations increased to S$8.5 million in the latest quarter, as compared to a negative operating cash flow last year. Capital expenditure for the quarter came in at S$17.9 million, due to acquisition of a property in Macau.

Going forward, the firm said that it expects its revenue to grow at a slower pace because of headwinds in Hong Kong and China. Despite this, it remains optimistic that its business will continue doing well and be cash flow positive.

Separately, it was announced that its products conform to the regulatory and safety requirements of the countries the products are sold in and that the Bo Ying Compound made in Hong Kong has been cleared by its health authorities. This is in response to safety warnings given by US regulators late last month.

Shares at the TCM group closed at S$0.775 on Wednesday.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.