Wednesday, 29 January 2014

OSIM International

OCBC on 28 Jan 2014

OSIM International Ltd (OSIM) reported a good set of 4Q13 results which saw revenue and PATMI increasing by 15.5% and 22.1% YoY to S$178.6m and S$27.6m, respectively. This was in line with our expectations. It also declared a final dividend of S$0.02/share, bringing total FY13 DPS to S$0.06. Notably, OSIM has now delivered 20 consecutive quarters of YoY PATMI growth since 1Q10. In our view, this growth has been underpinned by management’s strong execution capabilities amid its continuous product innovation drive and efforts to boost its brand profile and efficiency gains. We believe this warrants a re-rating in OSIM’s share price and hence assign a higher target peg of 18x (previously 16.5x) to our FY14F EPS forecast, which we revise upwards by 3.3%. This lifts our fair value estimate on OSIM from S$2.56 to S$2.90. Maintain BUY.

Achieves 20 consecutive quarters of YoY PATMI growth
OSIM International Ltd (OSIM) reported a good set of 4Q13 results which saw revenue and PATMI increasing by 15.5% and 22.1% YoY to S$178.6m and S$27.6m, respectively. This was in line with our expectations, with FY13 revenue of S$647.6m (+7.6%) and PATMI of S$101.6m (+16.9%). OSIM has now delivered 20 consecutive quarters of YoY PATMI growth since 1Q10, which we view as a remarkable feat. In our view, this growth has been underpinned by management’s strong execution capabilities amid its continuous product innovation drive and efforts to boost its brand profile and efficiency gains. 

Healthy dividends trend continues
OSIM also declared a final dividend of S$0.02/share, matching our forecast. This brings total FY13 DPS to S$0.06 (FY12: S$0.04 ordinary DPS and S$0.02 special DPS), which translates into a yield of 2.5%. OSIM’s consistent track record of paying dividends has been buttressed by its strong balance sheet (end FY13 net cash of S$112.7m) and S$93.6m of healthy free-cashflows generated in FY13. 

Enhancing its brand equity
4Q13 was the first quarter in which OSIM consolidated TWG-Tea in its financials. It recently raised its equity stake in TWG-Tea by 16.3 ppt to 70% on 19 Jan 2014 and we expect this to provide OSIM with another leg of growth in the luxury tea market. TWG Tea has 26 outlets as at 31 Dec 2013, and has plans to open another 20 outlets in 2014 (of which approximately half will be under franchisee model). We raise our FY14 PATMI forecast by 3.3% to take into account this development, coupled with slightly higher gross margin assumptions. We also introduce our FY15 estimates. Given OSIM’s solid execution track record and success in enhancing its brand equity which we believe will shape its sustainable growth trajectory, we assign a higher target peg of 18x (previously 16.5x) to our forecasted FY14F EPS. This lifts our fair value estimate on OSIM from S$2.56 to S$2.90. Maintain BUY.

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