OSIM International - DBS Research 2015-11-03: In Need of Blockbusters

OSIM International - DBS Research 2015-11-03: In Need of Blockbusters OSIM INTERNATIONAL LTD O23.SI 


Negative on the stock. 

  • We are negative on OSIM as we believe sluggish consumer sentiment and weaker regional GDP growth environment will dampen end demand. 
  • The 3Q15 results pointed to inventory build-up, falling sales per store, and rationalisation of store count. Thus, we are now more cautious of growth prospects going forward. 
  • We have cut FY15-17F earnings by 24-29%, and earnings growth is now muted at 3- 4%, which has led to a lower TP of S$1.22 based on 14x FY16F PE. 

In need of blockbuster products to induce earnings recovery. 

  • The catalyst for the stock is an earnings turnaround. 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 to be 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. At the moment, there are no signs to suggest that blockbuster products will help to turn around OSIM’s earnings. 

Declining sales growth trend. 

  • Since 3Q12, revenue growth y-oy on a quarterly basis has declined from +15% to -11% in 3Q15, excluding TWG. This was despite the continued launch of new chairs. 


  • Our target price of S$1.22 is based on 14x FY16F PE. OSIM has been expanding very quickly in its 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 PE valuation of 14x is pegged to the stock’s average 6-year historical mean valuation. 

Key Risks to Our View: 

  • Sluggish chair sales would keep earnings turnaround at bay. 
  • OSIM will benefit from a top-line turnaround and cost recovery. However, tepid demand and high opex would hamper the turnaround.

Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2015-11-03
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