Valuations
· Upgrade to BUY with a higher target price of S$2.35, derived from the average of our dividend discounted cashflow model and pegged to 3-year historical PE of 15.7x 2014F earnings.
· New product uAngel seems like a hit in retail stores with unfulfilled orders lined up till July-August.
Results
· OSIM reported 1Q13 net profit of S$25m (+13% yoy) despite flat revenue growth on stronger margins. Revenues were stable at S$151m partly due to a delay in recognition of sales from its new product uAngel.
· The company generated strong EBITDA of S$34m with EBITDA margins improving to 22.5% as compared to 21.3% in 1Q12, due to a better product mix and higher productivity.
· As at 31 Mar 13, OSIM had cash and cash equivalents and fixed income investments of S$252m. The group announced dividend of 1 S cent per share.
Our View
· According to management, we should see a significant jump in revenue for 2Q13 as the launch of the lower-priced uAngel was in Jan-Feb 13 and sales of these products have been encouraging.
· uAngel has a retail price of S$2,000 as compared to the higher-end S$5,000 uDivine massage chair and customers are quite receptive to the product. The group’s strategy is to target first-time buyers for these life-style products and a customer would only have to fork out S$55 per month on a 36-month installment programme. OSIM has also an extended warranty programme if the chairs break down within the 36 months.
· We checked a few stores in Singapore andMalaysia and these stores can sell up to 6-7 uAngels on a good day. Delivery for some specific colours can only be fulfilled in July-August (sales person is eager to show us receipts and inventories balance).
· We believe OSIM is on a right track in creating long-term demand and brand loyalty to the OSIM chairs. These customers will be able to trade-in their uAngel for the premium uDivine in the future.
· Although management is still maintaining its profit guidance of 10% growth in top-line and 15% in bottom line, we believe the company can exceed expectations and record revenue and earnings growth of 13.5% and 20.1% respectively.
· We expect the company to maintain a dividend per share of 6 S cents for 2013, providing investors a yield of 3.0% as of last traded price.
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