Share Price: SGD2.35
Target Price: SGD2.78(+18%)
Definitely the one to own
OSIM’s profit should see a substantial boost from TWG this year after the company raised its stake to 70% in October 2013. Store count is expanding rapidly and maiden outlets in North Asia will be opened this year.
Sales growth in China may rev up again following a successful marketing campaign in 2H13. Management appears more optimistic about 2014 after putting store expansion on hold in the past two years.
New product variations will still be rolled out on the heels of the two blockbusters last year. In particular, the uPhoria foot massager with leg warmers may do well in North Asia.
Rare portfolio of strong brands
OSIM is a rare pan-Asian company with true brand equity, in our view, as is evident from its pricing power and consistently high margins. With firm control over its upstream manufacturing and retail outlets, we believe it would be able to navigate its long-term growth with greater certainty. The company also sits on a net cash hoard of SGD113m and generates strong cash flow.
With TWG as the additional growth engine, OSIM can expect its EPS growth to improve to 19% this year from 17% last year. We estimate TWG currently accounts for 10% of group revenue. This improvement along with its increasing market-cap size should drive a re-rating of the stock in 2014. We peg our TP of SGD2.78 to 18x FY14E, implying a 17% upside. Maintain BUY.