OSIM INTERNATIONAL LTD
O23.SI
OSIM International - Doubly Hit by Haze and FX
- Worst quarter yet. Perfect storm of hazy fortunes and forex turmoil. Core 3Q15 NP fell 38% YoY to SGD10m.
- 4Q should pick up, but FY16 direction still hazy. Some bright spots include TWG in HK and a harder push for franchising.
- We cut FY15-17F EPS 23-25% and TP 15% to SGD1.49. Stock fairly valued at 5 yr. mean PER of 15x FY16F.
- Maintain HOLD.
What’s New
- 3Q15 was below expectations, dragged down by poor massage products performance across all markets, impacted by haze and currencies, as well as a jump in legal costs to SGD4m from SGD3m in 1H15.
- Core net profit (ex-legal costs) fell 38% YoY to SGD10.2m, its weakest quarter yet. While weak, OSIM in China/HK still did better than haze-affected Singapore/Malaysia.
- TWG grew revenue on more stores, but start-up costs in North Asia weighed down profitability. Two more stores were opened in HK, bringing the total to 49 stores, up from 37 a year ago.
- GNC was stable.
- Usual 1 ct DPS was declared.
- Balance sheet strong, net cash stable.
What’s Our View
- 3Q15 is likely to be the worst for this year as OSIM heads into its seasonal peak and legal costs should taper off in 4Q. Several new smaller products that it believes to be promising have been launched, including the cheaper uDiva Classic (at SGD1,999).
- Earnings direction in FY16 will still hinge on economic activity and currencies to a large extent, but this is well-known.
- The revenue environment could remain poor, but there are some emerging bright spots. TWG could start to turn around in markets such as HK, offsetting losses in China. Corporate business with hotels, airlines, etc, while still small, appears promising. OSIM will also push harder into high-margin franchising of both TWG and OSIM in the Middle-East and the USA.
- We cut FY15-17 EPS by 23-25% to account for lower OSIM same store sales in North and South Asia.
- Our TP drops to SGD1.49 from SGD1.75, based on a 5-yr forward mean of 15x EPS rolling forward to 2016. We value OSIM at 20% below peers.
- Maintain HOLD.
Gregory Yap
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2015-10-28
Maybank Kim Eng
SGX Stock
Analyst Report
1.49
Down
1.75
