OSIM International - DBS Research 2016-03-18: Hold out for higher offer premium

OSIM International - DBS Research 2016-03-18: Hold out for higher offer premium 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 HOLD Maintain HOLD 1.46 Up 1.28


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