SINGAPORE - Traditional Chinese medicine retailer Eu Yan Sang has reported a 48 per cent drop in first quarter net profit to $737,000.

The company, which had to deal with allegations in the United States last month that its medicinal powder had excessive lead compound, said its revenue rose by 4 per cent to $83 million for the three months to Sept 30.

The increase was mainly due to higher revenue generated from Australia, Hong Kong and Singapore.

Eu Yan Sang's wholesale revenue contribution increased without impacting on gross margin, which improved 30 points to 51.5 per cent.

As a result, gross profit rose by 5 per cent to $42.8 million.

Operating expenses, however, increased by 9 per cent, largely due to cost pressures in salary, higher rental across most markets and increased expenses in new markets.

Taxes were also higher by 4 per cent.

Consequently, net profit fell by 48 per cent.

Retail revenue grew 4 per cent, largely as a result of better retail performance in Singapore and Australia.

Earnings per share slipped to 0.17 cent from 0.32 cent previously while net asset value per share rose to 35.8 cents compared to 35.4 cents as at June 30.

Owing to the protracted unrest in Hong Kong and a slower economic growth in China, Eu Yan Sang expects its revenue to grow at a slower pace going forward.

It remains optimistic that its business will continue to be profitable and cash flow positive.