OSIM International

Kim Eng on 4 Jan 2013

To benefit from improving consumer sentiment. We expect better consumer sentiment in Asia this year, especially North Asia (mainly China, Hong Kong and Taiwan) which makes up 58% of overall Group sales. This is predicated on latest consumer surveys as well as property transactions in China, which mostly points to a rebound towards end- 2012. We expect the cascading wealth effects to boost sales for discretionary products from OSIM this year.

Exciting new line-up of chairs. We expect OSIM to roll out two brand new massage chairs in 2013. These will be the successors to its uSoffa and uDivine lines, but with totally new designs and functions. The latter was introduced in Nov 2010. OSIM typically aims for a 2-3 year product cycle with its flagship chairs which will come to an end in 2013. We expect these eagerly-anticipated new chairs to revitalize demand and provide a sizeable boost to sales, especially in its first year of introduction.

Acquisition of 30% interest in Suzhou Daitec. The company recently announced this minor transaction for a consideration of USD1.1m from its long-term strategic Japanese partner, Daito. OSIM holds 30% interest in its various upstream R&D/ manufacturing plants and this is a further continuation of the relationship. Material impact will be minimal.

Continued share-buybacks. Other than the healthy cash dividends in 2012, OSIM has continued to buy back shares from the open market, as recently as 27th Dec 2012 at SGD1.68/ share. This works out to almost 15m shares repurchased in 2012 since the cancellation of 50m treasury shares in Dec 2011. This is a testament to the very healthy financial position of the company (net cash SGD37m as of 3Q12).

Reiterate BUY. Given the encouraging outlook and the scarcity of quality names in the consumer space, we believe OSIM should trade at a premium to its historical PER average. We adjust FY13-FY14F earnings upward by 3-4% and peg our new TP of SGD2.45 to 18x FY13F, in-line with comparable peers in the  region. The SGD120m convertible bonds issued in July 2011 now has an exercise price of SGD1.90. Accounting for this dilution, our TP would imply 19x FY13F.