OSIM INTERNATIONAL LTD
O23.SI
OSIM International - Poor earnings and no dividends
Maintain HOLD; TP lowered to S$1.39.
- We lower our TP to S$1.39 based on its 5-year historical average of 16x FY16F PE 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$1.39 per share at least till the offer’s closing date on 29 April.
- Yet 1Q16’s results were below our expectations which led us to reduce our earnings forecast and lower our TP.
Weak 1Q16 earnings, no dividends declared was a surprise.
- We cut our FY16-17F earnings by 5% each after 1Q16’s earnings disappointment.
- A combination of higher operating costs and lower sales from a reduced number of stores resulted in lower than expected earnings.
- There was no quarterly dividend even though net cash and cash generation remained strong. This was a surprise as we had expected 1 Sct DPS payout this quarter.
Soft outlook.
- Outlook remains soft. A store rationalisation exercise of unprofitable outlets is underway.
- Store openings are expected to be less aggressive henceforth. We have lowered our store count assumption, imputed higher operating costs and reduced full year DPS payout for FY16F, to account for 1Q16 numbers and reflect slower earnings growth ahead.
Valuation:
- Our revised target price of S$1.39 is based on 16x FY16F PE.
- Our target PE valuation of 16x is pegged to the stock’s average 5-year historical mean valuation.
Key Risks to Our View:
- Downside risk could come from a further deterioration in business conditions post lapse of offer.
- Conversely, an improvement in business conditions would also pose upside risks to our neutral view.
Alfie Yeo
DBS Vickers
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Andy Sim
DBS Vickers
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http://www.dbsvickers.com/
2016-04-20
DBS Vickers
SGX Stock
Analyst Report
1.39
Down
1.46
