OSIM International

UOBKayhian on 30 Jul 2012

Valuations
· Maintain BUY with a target price of S$1.61. We derive our target price at the average fair value suggested from our dividend discounted cashflow model and the P/E valuation model pegged to its 3-year historical PE of 15x. We made no change to our earnings forecast with FY12F revenue and net profit of S$623m (+9.9% yoy) and S$82.8m (+19.8% yoy) respectively.
Results
· OSIM reported a 18.6% yoy growth in 2Q12 net profit of S$22.6m, driven by strong sales and stronger product margins. Revenue grew 11.7% to S$154.7m as compared with 2Q11 as the group continued to register strong same-store sales growth (SSSG) despite a rationalisation of outlets. Total outlets fell to 1,145 from 1,168 at the start of the year as OSIM reduced several RichLife outlets, shifting its focus to eight key cities in China from 19 previously.
· Gross profit rose 12.6% yoy to S$109.2m with gross profit margins improving to 70.6% (2Q11: 70.0%) as stronger marketing efforts continued to drive demand for its higher-margin products.
· OSIM declared an interim dividend of 1 S cent/share and a special dividend of 1 S cent/share in this quarter. Cash and cash equivalents of the group stood at S$196m with a net cash position of S$54m.
Our View
· 1H12 net profits formed 54% of our full-year forecast and the company looks on track to achieving our targeted growth rate of 19.8%. Going forward, management will leverage on OSIM products like uDivine App, uPhoria, uSoffa Runway and nutritional supplements like Taut Whitening, Zhi and Liver Protector to drive profitability across different business segments.
· The group only saw a net increase of one OSIM outlet this year but they remain confident of having an additional 30 OSIM outlets by the end of this year. We opine that revenue may not be too dependent on number of stores but more on the increasing sales per outlet.
· On earnings outlook, we are optimistic on the company even though management has highlighted slower growth in China and 3Q is traditionally a low season for OSIM.