OSIM

UOBKayhian on 1 Aug 2013

Valuation
• Maintain BUY and target price of S$2.35, derived from our dividend discounted cash flow model and pegged at its 3-year historical PE of 15.7x to our 2014F earnings. Based on Bloomberg’s estimate (12
brokers), OSIM has a 12-month target price of S$2.34 with 2013F dividend yield of 2.9%.

Financial Results
• OSIM reported 2Q13 net profit of S$26m (+16% yoy), driven by strong revenue growth and better EBITDA margins. Revenue increased 7% yoy to S$165m as demand for its uAngel products remained buoyant in the quarter. The company generated a strong EBITDA of S$36m due to a better product mix and higher productivity. As at 30 Jun 13, OSIM had cash and cash equivalents of S$270m • The group announced a dividend of 2 cents/share. OSIM is currently trading at 15.2x 2013F consensus earnings.

Our View
• 1H13 net profit accounted for 49% of our full-year forecast and 51% of consensus estimate. With such strong growth momentum in sales and earnings, we expect a slew of earnings upgrades from other brokers,
which could be a potential share price catalyst.

• During the results briefing, management remained positive on the earnings outlook after its uAngel chairs recorded strong sales for the quarter. The group also revealed its next high-end massage chair - the uInfinity.

• Although the design of uInfinity is broadly similar to the uDivine and uDivine App, the chair has the capability to add/upgrade new massage programmes which can be downloaded through the internet. This chair has a retail price of S$6,988, vs S$5,000 and S$5,500 for the older version of the uDivine and uDivine App respectively. This world-first massage chair has an initial 19 programmes and new programmes can
be purchased at S$2.99 each.

• As highlighted previously, we believe OSIM is on the right track in creating long-term demand and brand loyalty to the OSIM chairs. We make no changes to our 2013 net profit forecast of S$104.4m and expect the company to maintain a dividend of 6 cents/share for 2013, providing a yield of 2.9% as of last traded price.