OSIM International - DBS Research 2016-01-29: Deep value

OSIM International - DBS Research 2016-01-29: Deep value OSIM INTERNATIONAL LTD O23.SI 

OSIM International - Deep value 


Upgrade to BUY. 

  • We turn positive on OSIM after a > 40% share price decline since we downgraded the stock in October 2015. 
  • Valuations are attractive with dividend yield at close to 7% and forward PE (c.10x) at close to -1SD of its 7-year mean (14x). 
  • 4Q15 earnings showed sequential improvement with signs of bottoming out. We believe this will support DPS and dividend yield going forward. 
  • We hence do not see further downside pressure on the stock. Instead, earnings recovery momentum and valuation from a PE basis lead us to believe that OSIM’s share price reflects value. 
  • Our PE-based TP of S$1.28 is premised on modest earnings growth in FY16F and its target PE of 14x at historical mean. This represents 36% potential return from its current share price, and dividend yield (based on DPS of 6 Scts) at its target price is 4.7%. 

Sequential earnings improvement with minimal risk of dividend cut for now. 

  • 4Q15 has recorded a smaller than expected earnings decline. 
  • Core earnings (S$18m, -35% y-o-y) for 4Q15 was above expectations while the decline in revenue (S$169m, -5% y-o-y) moderating on a sequential basis. 
  • Sequential quarter growth in 4Q15 (vs 3Q15) was broad based, led by all three brands and the Hong Kong market. 
  • OSIM has continued to pay 6 Scts DPS from its strong balance sheet even though core earnings fell by close to 40%. 
  • With earnings decline seen projected to stabilise and its net cash of S$200m, we see limited risks of dividend cuts at this stage. 
  • Downside risk should therefore be minimal. 


Valuation: 

  • Our target price of S$1.28 is based on 14x FY16F PE. OSIM has strong net cash, cheap PE valuation, and is showing narrowing y-o-y sales decline. 
  • Our target PE valuation of 14x is pegged to the stock’s average 7-year historical mean valuation. 

Key Risks to Our View: 

  • Our positive view is based on earnings bottoming out and attractive dividend yield. 
  • Earnings risks and hence reduction in DPS would dampen our optimism on the stock.



Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-01-29
DBS Vickers SGX Stock Analyst Report BUY Upgrade FULLY VALUED 1.28 Up 1.22


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