OSIM International

OCBC on 27 Jul 2012

OSIM International Ltd’s (OSIM) 2Q12 revenue of S$154.7m (+11.6% YoY) was similar to our forecast, but PATMI of S$22.5m (+20.1% YoY) exceeded our projection by 9.1% due to better-than-expected margins. Another positive surprise came from a special declared DPS of 1 S cent (on top of a 1 S cent/share interim dividend). The stronger bottomline growth was driven by a favourable product mix, better productivity and continued rationalisation of stores. We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. Despite ongoing concerns over China’s slowing economy, we believe OSIM could be a laggard play as it continues to execute well on driving its productivity gains and product innovation. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.

2Q12 PATMI ahead of our expectations
OSIM International Ltd (OSIM) reported 2Q12 revenue of S$154.7m (+11.6% YoY, +3.1% QoQ) which matched our forecast of S$154.6m. PATMI jumped 20.1% YoY and 1.4% QoQ to S$22.5m. This exceeded our projection by 9.1% due to better-than-expected margins. For 1H12, revenue increased 6.0% YoY to S$304.8m, while PATMI of S$44.7m represented a growth of 15.0%. A pleasant surprise in the form of a special dividend of 1 S cent/share was declared, on top of an interim dividend of 1 S cent/share. This brings total DPS to 3 S cents YTD. The dividend payouts are supported by the healthy S$29.8m of operating cashflows generated during the quarter, versus S$24.7m in 2Q11. We raise our FY12 DPS forecast to 4.5 S cents.

It’s all about the margins
OSIM reported a strong operating margin of 19.1% in 2Q12, an improvement of 1.3ppt from 2Q11, backed by a favourable product mix from new launches, better productivity and continued rationalisation of non-performing stores. Management continued to emphasise on its focus on innovation to enhance its product offerings and drive its sales per store growth. Other initiatives include strengthening its backend infrastructure to improve efficiencies.

Laggard play, BUY rating reinforced
We raise our FY12 and FY13 PATMI estimates by 3.6% and 2.9%, respectively. OSIM’s share price has increased 2.6% YTD, underperforming the broader market. We believe that OSIM could be a laggard play as it remains on track to exceed consensus’ previous FY12F PATMI forecast of S$81.8m. Our new FY12 PATMI estimate implies a robust 26.8% growth over FY11. OSIM also offers an attractive FY12F dividend yield of 3.8%. While we acknowledge that concerns over the slowing Chinese economy remain entrenched, OSIM has executed well on driving its productivity gains and expanding its margins to mitigate this. Reiterate BUY with a revised fair value estimate of S$1.82 (previously S$1.61) as we roll forward our valuations to 14.3x blended FY12/13F EPS.