STI : 3,167.43
Price Target: 12-month S$2.60
A safe bet
• Met estimates against earnings disappointment in the sector
• New products to propel growth next year
• Expect TWG to contribute more significantly
• Maintain BUY with S$2.60 TP
Met estimates amid earnings disappointment in the sector. Unlike most of Singapore’s consumer stocks which failed to meet estimates, Osim’s 3Q13 results were on track. One of the key reasons was that Osim has a bigger exposure to North Asia markets (c.55% of revenue), amid slowing ASEAN consumption. Growth was driven by strong performance from China, Taiwan markets and its newly launched uInfinity chair. Osim has proven in this set of results that it is more resilient to softening demand in ASEAN. And as a retailer of higher end massage chairs, it is less likely to be susceptible to a decline in consumption among lower and middle class consumers.
Expect growth to be propelled by new products next year. We like the stock for its continued growth profile. The company consistently innovates and uses new products to drive regional performance. Going forward, management is lining up newer versions of existing models to be launched next year. This will ensure that there is sustainable revenue growth from these new chair launches this year and the next. There is also little risk of margin compression. Gross margins are attractively high at close to 70%, which we believe will be sustainable going forward. We also expect TWG to contribute more significantly in 2014.
Maintain Buy, TP S$2.60. Valuations are also undemanding at 14.2x FY14F earnings versus peers’ average of 17x. We maintain BUY on the stock with S$2.60 TP, based on 16x FY14F earnings.
Publish date: 03/01/13