OSIM International

UOBKayhian on 13 June 2012

Investment Highlights
· We maintain our BUY recommendation on OSIM International (OSIM) with a target price of S$1.61, pegged to its 3-year historical PE of 15x. Currently, the stock is trading at 10.6x 2012F consensus earnings with a PEG of 0.60x.
· We made no changes in our forecasts and expect OSIM to report FY12 net profit of S$82.8m, a growth of 20% yoy.

Our View
· Retail sales in Singapore remains positive despite headwinds in the global outlook. According to the Singapore Department of Statistics, we still see strong growth in retail sales, +9.1% yoy in March. We believe this is a result of the buoyant tourism industry in Singapore and the rising spending power in the region. UOB Kay Hian now expects visitor arrivals to meet the Singapore Tourism Board’s (STB) target of 17m visitors by 2015, or rise at a CAGR of 6.5% over the next four years. TWG Tea, a subsidiary of OSIM, will also benefit from an increase in visitor arrivals and tourism receipts as the Group has tea boutiques along the tourism strip such as in Marina Bay Sands, Takashimaya and ION Orchard.
· Strong financials can withstand any major economic slowdown As of 31 Mar 2012, OSIM has cash and cash equivalents of S$190m attributable to the strong EBITDA generated from its core business as well as the S$118m net proceeds raised from a convertible bond issue last July. Operationally, due to unprecedented demand for its OSIM products such as uDivine App, uPhoria and uSoffa, the Group reported record EBITDA and NPAT of S$32m and S$22m, a yoy growth of 3% and 10% respectively for 1Q12. The company had also declared an interim dividend of 1 S cent/ share for the quarter.
· OSIM and CEO have been buying shares from the market and this should support the share price. Over the last two weeks of May, OSIM has been buying shares from the open market and had accumulated more than 3.5m shares in that period at an average weighted price of S$1.18. CEO Ron Sim too has made an open market purchase of 373,000 shares at S$1.255. At its current trading price of S$1.135, we think potential investors are getting a steal, buying at an even more attractive level than the CEO and company.

Risks
· We have valued OSIM based on profitability and the targeted number of outlets OSIM and RichLife intends to expand. Any major economic slowdown in the region may translate to lower luxury consumption and impact OSIM’s sales and aggressive expansion plans.