OSIM INTERNATIONAL LTD
O23.SI
AWAITING FOR BLOCKBUSTER PRODUCTS
Neutral on the stock.
- We believe that chair sales are on a decline trend, and this has been the reason for OSIM reporting lower sequential headline sales growth (ex TWG consolidation) for the past eleven quarters. But, this has been priced in. We think that further downside is limited with support from OSIM’s DPS of 6 Scts per year.
Topline weakness.
- OSIM’s business is predominantly in massage chairs, with at least 60% of sales from OSIM massage products. While TWG is growing and has exciting prospects, we estimate its contribution to group earnings is small at 8- 10%. GNC’s business is also rather stable in nature. Hence, any growth catalyst rests on chair sales.
New chairs will need to be blockbusters in order to reverse the declining revenue trend.
- ASPs for new chairs are also declining, requiring volumes to work harder to attain revenue growth. Declining sales growth trend. Since 3Q12, revenue growth y-o- y on a quarterly basis has declined from +15% to -13% in 2Q15, excluding TWG. This was despite the continued launch of new chairs.
Valuation:
- Our target price of S$1.61 is based on 14x FY16F earnings. OSIM has been expanding very quickly in key markets of Singapore, Malaysia, Hong Kong, China and Taiwan. As such, we see earnings growth as an integral part of OSIM’s fair valuation.
- Our target valuation of 14x PE is pegged to the stock’s average 3-year historical mean.
Key Risks to Our View:
- Sluggish chair sales would keep earnings turnaround at bay. OSIM will benefit from a topline turnaround and cost recovery. Tepid demand and high opex would impede the turnaround.
Alfie YEO | Andy SIM CFA | http://www.dbsvickers.com/ DBS Securities 2015-09-02
1.61
Same
1.61
