We know that EZZ Life Science distributes 2 brands, but I find more interesting to focus on their own brand (EZZ) given that the other brand is more and more marginal for the company. EAORON just represents 10 % of their sales and much less of their profit, as they have a low gross margin.
As a result, all the figures below focuses on EZZ brand.
EZZ brand products have begun to be sold in FY 20. In 4 years, they have now reached annual sales of around 40 m$ (based on H1 24 sales annualised).
We can estimate the profitability of the EZZ brand at around 25 % as the company has almost exclusively 2 sources of costs (costs of sales, advertising and marketing costs) based on a gross margin of 84 % for EZZ brand and an estimated advertising and marketing costs* of 59 % of sales. If we include all the other costs before tax, we can estimate EZZ brand margin at around 20 % and the operating profit of EZZ brand at 8 m$ in FY 24.
EZZ Life Science is now valued at 80 m$ (at 1.80 $) and an EV of 61 m$ (given the cash level of around 19 m$ at June 24). So, the market values EZZ branded products at only 7.6 x their estimated OP 24. It looks quite cheap for a company which has such a top line growth (50 % during H1 24), a high margin (cf 20 % above) and a low level of Capex requirement. We can criticise the level of their marketing budget, but we have also to recognise that it does not prevent them from reaching decent margins.
Like every company there are some risks. In their case, it is mainly about their dependency on China**and the short history of the company (able to generate repeat sales ?). It is also not obvious to understand the main reasons of the company success as they do not have much R&D and do not produce themselves. At this stage, my understanding is that it is mainly due to a good marketing strategy, as the company has focused on the right distribution platforms in China. And probably a high level of new products.
* I estimate marketing costs at 9 % for EAORON brand as marketing costs for EZZ Life Science were only 9 % of sales in FY 20, when EZZ brand represented 4 % of total revenues. ** which should decrease thanks to their development in new geographic areas (South East Asia, North America and also expected in Europe).
EZZ Price at posting:
$1.84 Sentiment: Buy Disclosure: Held
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