Maybank Kim Eng Research 2015-06-26: OSIM - Lack of growth catalysts for investment in Trek 2000, Maintain HOLD with TP S$2.08.

Connecting with Trek 

  • Invested SGD11m to buy 25m shares in Trek 2000. Will add 7.7% to 1% current stake. 
  • May be interested in Trek’s FluCard Wifi modules as part of connected wellness & personal lifestyle strategy. 
  • Maintain HOLD on lack of growth catalysts. TP of SGD2.08 based on 18x FY15 P/E, 20% discount to peer average. 

What’s New 

  • OSIM has purchased 25m shares at SGD0.4365/share in Trek 2000, for a total of SGD10.9m. 
  • Trek will issue 24m new shares and sell 1m treasury shares to OSIM. It plans to place an additional 2m new shares to other investors. 
  • Together with the 3.3m shares it already owns, OSIM will hold 8.8% of Trek’s enlarged share base. 
  • Trek (Not Rated) provides solutions for the Internet of Things (IoT), with an emphasis on cloud, wearable and medical technologies. Its patented solutions are centred on wireless, USB, anti-piracy and security/encryption, among others. 
  • OSIM may be interested in Trek for its Wifi module or modular “FluCard” which enables devices to connect to the cloud. 
  • We believe OSIM could be interested in connecting its wellness devices such as blood-pressure monitors and weighing scales to the cloud, just as it did its massage chairs. Eventually, this could lead to a host of home-use “smart” products that are able to measure users’ biometric data. OSIM can also extract such data for predicting replacement cycles, we reckon. 
  • We further conjecture that OSIM could have found Trek’s future product roadmaps dovetailing with its own and deemed it worthwhile to increase its investment in Trek, rather than pursue a non-equity customer/vendor relationship. That said, the first fruits of their collaboration may take some time to surface. 

What’s Our View 

  • Maintain HOLD for now for lack of growth catalysts until its TWG expansion is over. Our TP of SGD2.08 remains based on 18x FY15 P/E or 20% below its peer average.

(Gregory Yap)

Source: http://www.maybank-ke.com.sg