Lacklustre environment
- Cut FY15-16 EPS by 16-19% on recent lacklustre consumer spending in China, Hong Kong & Malaysia.
- Next growth base still under construction. Recently acquired minority stakes in cosmetics & tech companies.
- Maintain HOLD till expansion over and/or regional consumer sentiment recovers. TP reduced to SGD1.75 from SGD2.08, still on 18x FY15 EPS, 20% discount to peer average.
What’s New
- Discretionary spending in OSIM’s core markets remains lacklustre.
- China’s automobile sales fell 2.3% YoY in June, the first decline of this magnitude in more than two years.
- Demand appears to have been sapped by its stock-market rout.
- Hong Kong’s retail sales continued to drift down for the sixth consecutive month, excluding a CNY festive bump in February.
- Malaysia’s held up better up until 1Q15, according to Bloomberg, but could have contracted in 2Q due to GST, according to the Malaysia Retailers Association (MRA).
- MRA recently cut its 2015 retail sales projection for the third time, from 4.9% to 4% growth, on the back of MYR weakness.
What’s Our View
- We cut FY15-16 EPS by 16-19% for lower same-store sales assumptions for North and South Asia.
- Our TP drops to SGD1.75 from SGD2.08, still on 18x FY15 EPS, 20% below peer average.
- OSIM is still building a base for its next growth phase, which involves expansion of its high-end TWG tea business.
- It also recently acquired minority stakes in HK-based cosmetics company Laboratoires du Palais Royal Limited (LDPRL) and Singapore-based technology solutions provider Trek 2000 (Not Rated).
- It paid USD2m for 21% of LDPRL and SGD11m for 8.8% of Trek.
- Trek is profitable but we understand that LDPRL is not. Until this base is fully built, we expect volatile earnings.
- We now expect FY15 net profit to fall 21% to SGD81.2m.
- 2Q15 results, due on 23 Jul, are likely to reflect this with a potential 33% YoY fall in net profit to ~SGD20m.
- Stay HOLD. Valuations are close to the 5-year mean of 14.4x EPS.
(Gregory Yap)
Source: http://www.maybank-ke.com.sg
