GIVEN the weak consumer sentiment in the markets it operates in, Esthetics International Group Bhd (EIG) is hopeful its three new brands that are coming onstream will bolster its performance this financial year. Apart from a wider product line, the group is  expanding its distributorship channel in Indonesia after close to two years of negotiations.

According to EIG group CEO Roderick Chieng, current consumer sentiment is weak across Southeast Asia, where the group has a presence.

“Since the government cut back on subsidies, increasing the cost of living, and the Goods and Services Tax was implemented on April 1, consumer sentiment in Malaysia has really been affected.

“Hong Kong and Singapore have been affected by property cooling measures as well as lower tourist arrivals. In Hong Kong, the Occupy Central movement at the end of last year and the anti-parallel trade protest at the start of this year affected consumer spending,” says Roderick.

EIG executive chairman Eddy Chieng says new product ranges and a new country in the region to start distributing its products provide a new platform for the group to garner revenue and cope with the current environment.

“Our strategy is to bring in more complementary or more strategic brands that promote skin health. We have been looking for many years, and this contract with Youngblood  took us nearly two years to finalise.

In January, EIG signed a contract with Youngblood Skin Care Products LLC to distribute Youngblood cosmetic products in Malaysia, Singapore, Hong Kong, Taiwan, Macau, Thailand, Indonesia, Brunei, Vietnam, Cambodia, the Philippines, Myanmar and Laos.

“Now that we have brought the product on board and it’s been sold [for] about a month ... you can see that the reception has been good and it will potentially be a significant business. But like any new product, it needs time to bring up the momentum,” says Eddy.

In 2014, EIG (fundamental: 2.20; valuation: 1.40) has signed three distributorship agreements, including Youngblood. The first was with Micro Current Technology Inc to distribute Bio-Therapeutic skincare equipment in Malaysia, Singapore, Brunei and Thailand.

EIG inked another agreement in January 2015 with Privity Pty Ltd and EA Holland Pty Ltd to distribute the Evo range of haircare products in Hong Kong, Macau, Malaysia, Brunei, Singapore, Indonesia, the Philippines, Cambodia, Thailand, Laos and Myanmar.

In addition, Eddy says EIG is in talks with several leading international brands to widen its brand distribution range. However, this will only take place next year as the group has to digest the new products under the new brands.

On the delay in its expansion in Indonesia, Eddy says it was due to bureaucratic processes. But with that out of the way and product registration in progress, the group is looking at distributing its products in the country from next year.

EIG currently has a sub-distributorship arrangement in Indonesia.

Roderick says, “We are basically about to settle on a building and we have the exclusive distributorship of a number of brands, including Dermalogica, Youngblood and Evo. We are very confident and excited about the potential of the Indonesian market, especially with a population of 250 million.”

Currently, the bulk of EIG’s revenue comes from Malaysia with 40% coming from overseas, but Roderick sees its regional business contributing more given the weak ringgit as the group buys its products in US dollars.

“Over the last 12 months, the US dollar has strengthened 28% against the ringgit. Our cost of goods is increasing because of the lower ringgit. With this we are forced to do more promotions and discounting ... so that has resulted in some margin compression,” says Roderick.

On average, Eddy says, EIG used to have at least a 10% profit margin. “But you can drive quantity to compensate for that,” he says.

He adds that another way to deal with distressed margins would be to increase contributions from its professional services at its corporate outlets where margins are less affected by the weak currency.

“At this point we have three quarters to go and we are still very hopeful that the festive period towards the end of the year — also our second and third quarter — will be stronger,” says Eddy.

Last week, the group reported a net profit of RM3.55 million for its first quarter ended June 30 compared with RM3.35 million a year ago. Revenue stood at RM35.06 million compared with RM35.11 million.

This article first appeared in digitaledge Weekly, on August 31 - September 6, 2015.