Asia Essentials

We initiate coverage on BEAUTY with a non-consensus Underperform ratingand a DCF-based TP of Bt8.0, or 27% downside potential, as we believe themarket has already priced the shares for perfection. The share price has risensharply on rapidly growing sales and net profit on expanding market share andmargins. But in contrast with the street, we expect both earnings and profitabilityto normalize rather than continue to accelerate exponentially as reflected in itslofty valuation. We think BEAUTY’s risk/reward ratio is unattractive on 38x 2017ePER, almost 2-std above its 4-year average. It is also the most expensivecosmetic stock in the region. In the Thai retail segment, we prefer CPALL andHMPRO for their dominant industry positions and quality growth.