We believe that OSIM International (OSIM) would be a key beneficiary of a recovery in economic conditions in China, which is its largest market. Looking ahead, we expect OSIM to continue its product innovation drive, with plans to launch two new massage chair models in 1H13 to augment its product portfolio. Management has also embarked on a nationwide media advertising campaign in China to increase its reach to new audiences. These initiatives, coupled with a focus on improving productivity, would help to drive its sales and profitability for FY13, in our view. Despite OSIM’s recent strong share price run up, we see room for further re-rating given the improved market risk appetite and its attractive valuations versus its peers. We raise our fair value estimate on OSIM from S$1.87 to S$2.14 as we apply its peers’ average forward PER of 16.4x to its FY13F EPS. Maintain BUY.
Encouraging signs in China’s recent economic data
We believe that OSIM International (OSIM) would be a key beneficiary of a recovery in economic conditions in China, which is its largest market. In our opinion, China’s retail sales have been fairly resilient. The latest retail sales growth of 14.9% YoY for Nov not only exceeded market expectations, but was also the highest increment since Mar this year. According to Bloomberg’s average consensus estimates, China’s real GDP is projected to increase 7.8% YoY in 4Q12, which would imply a reversal of seven consecutive quarters of decelerating economic growth since 1Q11.
Innovation driven growth supported by active advertising
Looking ahead, we expect OSIM to continue its product innovation drive, with plans to launch two new massage chair models in 1Q and 2Q 2013. These new chairs are aimed at augmenting its product portfolio by building on the popularity of its current uDivine and uSoffa models (similar price points targeted). Management has also embarked on a nationwide media advertising campaign in China to increase its reach to new audiences. These initiatives, coupled with a focus on improving productivity, would help to drive its sales and profitability for FY13, in our view.
Attractive valuations versus peers; reiterate BUY
OSIM’s share price has accelerated 50.6% since we first highlighted it as a laggard theme play on 27 Jul 2012, outpacing the STI’s 7.3% gain. We believe that there is potential for further re-rating, given the improved market risk appetite for higher beta stocks and OSIM’s undemanding valuations vis-à-vis its peers set of consumer discretionary specialty retailers with a regional presence (Exhibit 3). We believe that it is justifiable for OSIM to trade at least at parity with its peers’ average forward PER as it has established a strong brand equity in the region over the years, is in a healthy financial position and also commands a higher estimated net margin. Applying the 16.4x peers’ average forward PER (previous peg used was 14.3x) to OSIM’s FY13F EPS, we derive a higher fair value estimate of S$2.14 (previously S$1.87). Maintain BUY.
We believe that OSIM International (OSIM) would be a key beneficiary of a recovery in economic conditions in China, which is its largest market. In our opinion, China’s retail sales have been fairly resilient. The latest retail sales growth of 14.9% YoY for Nov not only exceeded market expectations, but was also the highest increment since Mar this year. According to Bloomberg’s average consensus estimates, China’s real GDP is projected to increase 7.8% YoY in 4Q12, which would imply a reversal of seven consecutive quarters of decelerating economic growth since 1Q11.
Innovation driven growth supported by active advertising
Looking ahead, we expect OSIM to continue its product innovation drive, with plans to launch two new massage chair models in 1Q and 2Q 2013. These new chairs are aimed at augmenting its product portfolio by building on the popularity of its current uDivine and uSoffa models (similar price points targeted). Management has also embarked on a nationwide media advertising campaign in China to increase its reach to new audiences. These initiatives, coupled with a focus on improving productivity, would help to drive its sales and profitability for FY13, in our view.
Attractive valuations versus peers; reiterate BUY
OSIM’s share price has accelerated 50.6% since we first highlighted it as a laggard theme play on 27 Jul 2012, outpacing the STI’s 7.3% gain. We believe that there is potential for further re-rating, given the improved market risk appetite for higher beta stocks and OSIM’s undemanding valuations vis-à-vis its peers set of consumer discretionary specialty retailers with a regional presence (Exhibit 3). We believe that it is justifiable for OSIM to trade at least at parity with its peers’ average forward PER as it has established a strong brand equity in the region over the years, is in a healthy financial position and also commands a higher estimated net margin. Applying the 16.4x peers’ average forward PER (previous peg used was 14.3x) to OSIM’s FY13F EPS, we derive a higher fair value estimate of S$2.14 (previously S$1.87). Maintain BUY.
No comments:
Post a Comment