OSIM

Kim Eng on 8 May 2012

In-line with expectations. 1Q12 revenue was flat yoy, but this measured up very well against a very strong record 1Q11 which benefited from the then recent-launch of the hugely successful uDivine massage chair. Profit grew 10% yoy to SGD22m largely as a result of lower tax for the quarter and we maintain our expectations for the company to grow sales and revenue by 10% and 20% respectively for 2012.

Measuring up well against a record 1Q11. Although 1Q12 is considered a seasonally strong quarter for the retail business in North Asia, we believe OSIM’s revenue seasonality is more product-launch driven. While the uPhoria foot massager, which was launched in 4Q11 is selling very well, they have significantly lower ASP compared to the best-selling uDivine massage chair launched in 4Q10.

Sales should pick up with uDivine apps. OSIM is launching the uDivine Apps massage chair this quarter, which has the additional functionality of unlimited massage programs (through a downloaded app from iPhone etc) as well as higher-end material for an additional ASP of SGD500. This is again an industry-changing product which should boost massage chair sales for the rest of the year.

Store rationalisation drives. As guided earlier, Richlife outlets have now been rationalized to 65 in seven key cities (from about 100 in 19 cities earlier). 3 OSIM outlets were closed during the quarter and management now expects net store opening of 30 in China for 2012. Focus will be on sales/ profit per store. As we have earlier argued, store rationalization should not be taken as a negative given that OSIM is now a well-known premium brand, and store count may not be a direct sales driver.

Crisis provides opportunity. The company declared its maiden quarterly interim dividend of SGD1 cent/ share. Its undemanding valuation of 11x FY12F implies the market is pricing in earnings risk which we see as unsubstantiated. Given its cash position of SGD190m (net cash SGD53m), global economic uncertainty may actually be beneficiary in its M&A quest. We maintain our estimates and TP of SGD2.02, based on 18x FY12F.