- 1Q14 results exactly in line with our expectations, with attributable net profit of SGD28.8m (our forecast: SGD28.9m), up 15% YoY.
- Earnings growth momentum set to accelerate during the year, with the launch of uDiva in 2Q14 and higher profit contributions from TWG.
- Reiterate BUY with a Street-high TP of SGD3.45.
OSIM’s 1Q14 revenue grew 15% YoY to SGD172.6m, aided by the maiden consolidation of TWG as a 70%-owned subsidiary, though management did not disclose the contribution separately. Excluding TWG, we estimate revenue grew around 3% YoY. Overall margins held steady despite the inclusion of TWG and overall net profit grew 15% YoY to SGD28.8m.
Although top-line growth excluding TWG was slightly weaker than expected, it was nonetheless creditable considering the weak retail sentiment in Singapore and Malaysia, OSIM’s key markets, and the lack of a major product launch. However, we expect sales to pick up in 2Q14 following the launch of uDiva sofa, an improved version of the earlier uAngel.
In terms of bottom line, we believe the contribution from TWG was insignificant in 1Q14 due to start-up costs in China and Taiwan. These markets will start turning profitable as the company ramps up store openings this year.
Reiterate BUY
OSIM sits on SGD155m in cash, which will increase to almost SGD300m by year-end upon full conversion of its convertible bonds. We believe it is fair to account for that separately after subscribing a 20x FY14E ex-cash P/E valuation. We maintain our Street-high TP at SGD3.45. Reiterate BUY.
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