Share Price S$2.21
Target Price S$2.76
OSIM International (OSIM) creates, designs, develops and markets well-being and healthy lifestyle products through its specialty retail outlets worldwide. Its products include massage chairs, foot massagers, neck & shoulder massagers, head massagers, fitness equipment, diagnostic equipment, vitamin & supplements, and luxury tea. The company has a portfolio of brands including OSIM, TWG, RichLife, GNC and Brookstone.
• Consistent earnings growth backed by product innovation and productivity. OSIM reported a 19th consecutive set of record quarterly earnings in 3Q13 with net profit growing 16% yoy to S$23m. This was driven by strong revenue growth from new products and higher sales per store and per salesperson. Management remains upbeat on earnings outlook after sales of their uAngel and uInfinity massage chairs gained traction in the quarter. Management has also seen several trade-ins of the uDivine chairs, a product launched three years ago. This shows that OSIM is on the right track in creating long-term demand and brand loyalty to its OSIM chairs.
• TWG the next crown jewel for OSIM. The company has also increased its stakes in TWG in 4Q13 to 53.7% and will consolidate its earnings into OSIM’s financial statements going forward. There are currently 22 TWG boutiques and OSIM targets to expand the network further in Singapore, Korea, Thailand and Malaysia. OSIM reiterated that each location continues to be profitable on its own with an annual 3-5% yoy same-store sales growth. In China, TWG tea has penetrated 60 luxury hotels and OSIM has plans to open 6 tea boutiques in the country next year.
• Building a cash war chest with EBITDA margin of more than 20%. OSIM continues to generate very strong cash flow due to its cash-based business and low working capital needs. As at 30 Sep 13, OSIM had cash and cash equivalent of S$283m. With such a strong cash position, we expect the company to pay out healthy dividends, undertake share buybacks and be on the lookout for potential brand acquisitions.
• Maintain BUY and target price of S$2.76, derived from the average of our dividend discounted cash flow model and pegged at its 3-year historical PE of 15.7x to our 2014F earnings. Although management still maintains its profit guidance of a 15% growth in bottom line, we believe the company can exceed expectations and record a net profit of S$108.1m (+24.3% yoy) in 2013. The company is also expected to maintain a dividend of 6 S cents/share for 2013, providing a yield of 2.7% as of the last traded price
Publish date: 28/11/13