OSIM International

UOBKayhian on 21 Mar 2014

FY14F PE (x): 16.6
FY15F PE (x): 14.3

UOB Kay Hian hosted an ASEAN Conference in Taiwan on 18-19 March. New products to drive sales. Going forward, OSIM will be launching new products such as uShape, uAngel 2 and probably a newer version of the high-end chair by the end of the year. Management re-iterated that by segmenting the mid-end entry uAngel chair and the high-end uInifinity chair, it can target first-time users for OSIM products and eventually convert them to trade up for a high-end chair in 3-5 years’ time. According to management, approximately 30% of their current chairs are sold to existing customers either for a trade-in or upgrade to the newer massage chairs. China slowdown will not impact OSIM. Some investors were concerned that the lesser-than-expected growth of stores in China and China’s slowdown could impact retail sales. Management is confident of the resiliency of the business as they are targeting high-end consumers in China who are less affected by an economic slowdown. OSIM will continue to open 20- 30 stores in China annually but will also rationalise those nonperforming stores. Maintain BUY with a higher target price of S$3.15. Our target price is derived from our dividend discounted cash flow model and pegged at its 3-year historical PE of 14.8x to 2014F PE. We increase our growth rate from the initial 7% to 7.5% to account for the strong growth potential of the company. We also expect the company to pay out a dividend of 8 S cents per share, providing investors a yield of 3%. Faster-than-expected store expansion in TWG Tea stores and the launching of new OSIM products. Management highlighted that TWG Tea’s operating margins may even exceed the operating margins of the group once operating efficiency kicks in with a central kitchen set up in every country.