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OSIM International (OSIM SP) Summary

Core Content and Key Information

• Share Price: SGD2.71
• Target Price: SGD3.45 (+27%)
• Market Cap (USD): 1.6B
• Average Daily Trading Volume (USD): 3M
• Location: Singapore
• Sector: Consumer Discretionary
• Rating: BUY (Unchanged)
• Key Markets: Singapore and Malaysia

Main Points

Earnings Growth

• 1Q14 Earnings: Attributable net profit of SGD28.8m, aligning with forecasts of SGD28.9m, showing a 15% YoY increase.
• Earnings Momentum: Expected to accelerate during the year due to the launch of uDiva in 2Q14 and increased profit contributions from TWG.
• Core EPS Growth: 13.8% in 1Q14, with a 13% core P/E and a 14.4% net margin.
• Pretax Profit Growth: 16.6% YoY, indicating strong performance despite start-up costs from TWG.
• Net Profit Growth: 14.7% YoY, with a 15.5% core net profit margin.

uDiva Launch

• Launch: uDiva was officially launched in 2Q14, replacing uAngel.
• Performance: Demonstrated significant improvement in the massage mechanism compared to uAngel.
• Price: Priced at SGD2,588, 30% higher than uAngel.
• Expectation: Expected to be a strong seller due to its improved functionality and brand endorsement.
• Endorser: Popular South Korean actor Lee Min-Ho was appointed as an endorser.

TWG Contribution

• Revenue Contribution: TWG's inclusion as a 70% subsidiary contributed to 1Q14 revenue growth, but its impact on the bottom line was minimal due to start-up costs.
• Profitability Outlook: TWG is expected to turn more profitable by FY15E as it expands its store presence in China and Taiwan.
• Store Expansion: TWG had 30 outlets at the end of 1Q14, with plans to expand to at least 45 by year-end.
• Outlets Opened: First store in Breeze, Taipei, in 1Q14; another in Taipei 101 later in the year. In China, the first outlets will open in July in Shanghai and Beijing.

Financial Metrics

Share Price Performance

• 1-Month Return: 6.7%
• 3-Month Return: 20.7%
• 12-Month Return: 40.9%
• Relative to Index: 5.6%, 11.1%, 46.8% respectively

Peer Comparison

Key Takeaways

• Earnings Growth: OSIM's earnings growth is expected to accelerate, supported by the launch of uDiva and TWG's future profitability.
• TWG Contribution: While TWG had a minimal impact on the bottom line in 1Q14, it is expected to significantly contribute to profitability in the coming years.
• Financial Health: OSIM has a strong cash position with SGD155m in cash, projected to increase to almost SGD300m by year-end.
• Valuation: The company is valued at a Street-high target price of SGD3.45, with a core P/E of 18.6 for FY14E.
• Dividend Yield: The net dividend yield is expected to rise to 2.5% by FY16E, indicating a growing shareholder return.
• Performance Outlook: The company is optimistic about the performance of uDiva and TWG's expansion, which will help drive revenue and profitability.

Conclusion

OSIM International is well-positioned for growth, with a strong financial foundation and promising new product launches. The inclusion of TWG is expected to significantly boost profitability in the future, and the company's strong cash reserves and strategic initiatives support a positive outlook. The reiteration of a BUY rating and a high target price suggest confidence in its future performance.