OSIM INTERNATIONAL LTD
O23.SI
OSIM International - Hold out for higher offer premium
- Mr Ron Sim would have to raise his offer if he really wants to privatise OSIM
- We believe an offer price of above S$1.51 would enhance privatisation success
- Maintain HOLD, TP raised to S$1.46
Maintain HOLD; TP raised to S$1.46.
- We raise our TP to S$1.46 based on its 5-year historical average of 16x FY16F PE (from 14x previously) but continue to maintain our neutral stance on OSIM from a fundamental perspective.
- We believe share price should be supported by its founder, Mr Ron Sim’s announcement to privatise OSIM at S$1.32 per share.
- We had previously upgraded the stock on 29 Jan 2016, post its 4Q15 results, citing deep value; and the counter rallied c.45% thereafter, partly due to this development.
- At this juncture, the privatisation offer poses no fundamental changes to our earnings forecast but the offer price should lend support to share price.
Hold out for a higher premium if possible.
- We note that the offer price is below the annual period VWAPs from 2012 to 2015. The 2nd to 7th largest shareholders collectively own 13.79% of OSIM, each holding between 1% and 6% with entry periods from 1Q12 to 2Q14.
- We are taking a fundamental approach at this stage, and hence our HOLD recommendation given the limited upside to our new TP.
- While we note that the current traded price is above the offer, we would recommend current shareholders who might like to potentially benefit from a higher revised price to hold out, given the limited downside at S$1.32. That said, we are not ready to advocate investors to initiate new positions in hope of a higher offer given the uncertainties.
Valuation:
- Our revised target price of S$1.46 is based on 16x FY16F PE. OSIM has strong net cash, cheap PE valuation, and is showing narrowing y-o-y sales decline.
- Our target PE valuation of 16x is pegged to the stock’s average 5-year historical mean valuation.
Key Risks to Our View:
- Upside risks lies in a significantly better revised offer, and conversely, downside could come from the absence of revised price and a deterioration in business conditions post lapse of offer.
Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-03-18
DBS Vickers
SGX Stock
Analyst Report
1.46
Up
1.28
