OSIM International

UOBKayhian on 25 Oct 2012

Valuations

·         Maintain BUY with a higher target price of S$1.87, as we roll over our valuation to peg to 2013F earnings. The target price is derived from the average of our dividend discounted cashflow model and 3-year historical PE of 15x 2013F earnings. We expect the group to report revenue of S$711.5m (+13.2% yoy) and earnings of S$99.6m (+14.4% yoy) for 2013.

Results

·         OSIM reported a strong set of 3Q12 results registering a 15.1% yoy growth in revenue and 47.3% yoy growth in net profit. Revenue grew to S$142.3m driven by an improvement in same-store sales (SSS) and better product mix. Total number of outlets expanded for the first time in 9 months across all business segments to 1,157 from 1,145 stores as at 30 Jun 12.    

·         Gross profit gained 20.5% yoy to S$104.0m with gross profit margins trending higher to 73.1% (2Q11: 69.9%) as OSIM saw robust demand from higher-margin products.

·         Cash and cash equivalents of the group stood at S$185.0m with a net cash position of S$37m. OSIM had declared an interim dividend of 1 S cent/share.

Our View

·         OSIM presents one of the best investment opportunities with improving sales, gross margins and net profits, backed by a strong dividend payout for 2012 and continued share buyback to support stock price.

·         We have increased our 2012 net profit forecast by 5.2% to S$87.1m as 9M12 has already contributed to 78% of our previous full-year forecast with another strong quarter to go. We believe that the earnings growth is sustainable going forward driven by innovative products like uDivine App, uPhoria, uSoffa Runway and nutritionalsupplements like Taut Whitening, Zhi and Liver Protector.

·         We believe OSIM is gearing itself for the peak holiday season as we saw an expansion of outlets across all business segments, including Brookstone. With OSIM’s scale, we believe the group can also invest heavily in marketing, advertising and promotion and product placement to boost its overall brand equity and gain market share.   

·         OSIM had paid out a total dividend of 4 S cents ytd and we expect another 2 S cents for the final quarter, bringing the total dividend yield to 3.9%. OSIM has also been buying shares from the open market in October and had accumulated more than 577,000 shares at an average weighted price of S$1.44. Under the new share buyback programme, they can purchase another 45.8m shares.