OSIM

DMG & Partners on 9 Feb 2012


OSIM reported a 1 per cent y-o-y growth in Q4 2011 earnings to S$17.1 million, on the back of an 8 per cent y-o-y growth in revenue to S$142.7 million. Stripping out the S$5 million one-off asset gain in Q4 2010, core earnings grew by 43 per cent. FY11 earnings rose 38 per cent y-o-y to S$69.1 million, on the back of a 9 per cent growth in sales to S$553.7 million.

These however fell short of our expectations by 8 per cent and 6 per cent, respectively, largely due to more aggressive store rationalisation which saw the number of OSIM outlets decline by 16 to 592 in FY11.

We lower our FY12 sales and earnings by 10 per cent and 8 per cent, respectively, to take into account further store rationalisation, especially with regard to RichLife which currently has 104 outlets in 17 cities and would be scaled back to focus on seven key cities.

The focus going forward would be on store profitability rather than the number of stores, hence we expect further margin expansion in FY12.

A final dividend of one cent was declared, bringing total FY11 payout to three Singapore cents. We maintain our 'buy' call on the stock with a higher TP of S$1.59 (previous S$1.55), as we roll over our valuations to 15 times FY12.
BUY

OSIM

OCBC on 8 Feb 2012


OSIM International Ltd (OSIM) reported its 4Q11 results that were within our expectations. Revenue increased 7.6% YoY to S$142.7m, while net profit inched up 0.8% to S$17.1m. For FY11, revenue of S$553.7m (+8.8%) and net profit of S$69.1m (+37.9%) formed 101.5% and 99.5% of our forecasts, respectively. A final cash dividend of 1 S cent was declared, bringing total FY11 dividends to 3 S cents. Looking ahead, we expect OSIM to continue its focus on product innovation and improving its productivity and sales per store. Nevertheless, we opine that slower economic growth in its major markets could pose higher risks for the group. We lower our FY12 earnings forecasts by 5.1% and derive a fair value estimate of S$1.35 (previously S$1.37), partially mitigated by a smaller share base due to recent share buybacks. Downgrade to HOLD.

4Q11 results met our expectations. 
OSIM International Ltd (OSIM) reported its 4Q11 results that were within our expectations. Revenue increased 7.6% YoY to S$142.7m, while net profit inched up 0.8% to S$17.1m. Sequentially, top-line and bottom-line grew 15.4% and 30.1%, respectively. For FY11, revenue of S$553.7m represented an 8.8% climb, or 1.5% higher than our estimates. Net profit jumped 37.9% to S$69.1m, and was just 0.5% shy of our S$69.4m forecast. As expected, a final cash dividend of 1 S cent was declared, bringing the total FY11 dividends to 3 S cents, and translates into a yield of 2.3%.

Store rationalisation and product innovation to continue.
Strategically, OSIM remains focused on continued product innovation, with a pipeline of new products to be launched in 2012. Management also reiterated its intention to continue the rationalisation of its stores, while striving to improve productivity and sales per man and store. For instance, OSIM now plans to concentrate on its RichLife outlets in seven key cities, from nineteen previously, to prevent getting ‘overstretched’. This move is expected to narrow its losses for its RichLife business in FY12, with breakeven likely happening in FY13.

Downgrade to HOLD.
Meanwhile, China’s growth engine has eased in recent quarters. IMF also warned that China’s economic growth could be reduced almost by half should the euro zone debt crisis deteriorate further. Besides China, Hong Kong and Taiwan, other key markets for OSIM, are both anticipating sluggish growth in 2012 versus 2011. In our view, a slowdown in the economies of OSIM’s major markets would make the group’s high-end products susceptible to a pullback in discretionary spending. Hence, we cut our FY12 earnings forecasts by 5.1% and introduce our FY13 projections. Our fair value estimate declines from S$1.37 to S$1.35, partially mitigated by a smaller share base due to recent share buybacks by OSIM (still based on 12.9x FY12F EPS). Downgrade to HOLD.