Wait for more sustained recovery
- 2Q15 earnings below expectations, earnings continued to decline y-o-y albeit at a slower pace.
- Cut FY15/FY16F earnings by 15% each.
- Strong balance sheet; share price supported by 4% dividend yield.
- Maintain HOLD with lower TP of S$1.61.
2Q15 below expectations.
- OSIM turned in slightly weaker than expected results; earnings of S$22.4m (-24% y-o-y) was below our estimates.
- The drag came from lower than expected topline, offset by lower staff costs.
- Revenue declined 13% y-o-y to S$159.5m but improved 6% on a q-o-q basis, contributed by sales of newly launched uMagic chair.
- OSIM has now registered four consecutive quarters of y-o-y earnings decline, albeit at a slower pace (-24% vs - 53% y-o-y last quarter).
- We have also observed declining inventory turnover or longer inventory days over past three consecutive quarters.
- A dividend of 2 Scts for the quarter was declared, in line with our expectations.
Growth supported by new products, more stores.
- OSIM’s revenue has been falling; the declines of 13% in 1Q and 2Q15 have been the deepest in around six years.
- We believe core chair sales have been weak due to subdued demand.
- Nonetheless, our growth outlook is likely to be supported by the new uDiva Classic sofa chairs, and new OSIM and TWG stores.
- Five new TWG stores are poised to open in Hong Kong and Macau in 2H15.
Cut FY15F/FY16F earnings by 15% each.
- Factoring in the earnings disappointment, we cut FY15F/FY16F earnings by 15% each.
- We lower our store count and sales per store assumptions as both parameters have lagged our expectations.
- We also impute higher opex as we believe marketing expenses will increase due to uMagic’s change of marketing strategy.
Maintain HOLD, TP lowered to S$1.61.
- We maintain our HOLD rating as we look for OSIM to turn in better earnings growth visibility.
- At current price, the stock offers a 4% yield, on DPS of 6 Scts.
- There is low risk of any cut to DPS as net cash is strong.
- We hence see limited downside for the stock, but also believe upside is capped.
- We roll over our 14x PE based valuation to FY16F EPS, which translates to a TP of S$1.61.
- Maintain HOLD.
Source: http://www.dbsvickers.com/
