Buy | Target price: SGD2.10

Above expectations; Growth + Dividend indeed. We believe 3Q12 results were above expectation, as OSIM achieved a stellar set of results during a seasonally weaker third quarter. 3Q12 net profit was up 49% yoy to SGD19.6m while PBT was up 23% yoy, as management declared a maiden 3rd quarter interim dividend of SGD 1 cent/ share, taking ytd dividend to SGD 4 cent/ share. This confirms our earlier argument that this stock is an attractive blend of growth and dividend.

Revenue growth on all fronts. In the seasonally weakest sales quarter, OSIM achieved yoy revenue growth of 15%. Both its two key geographical markets, North Asia (+14% yoy) and South Asia (+17%) showed good growth momentum. Even its smaller international market segment also surprised with its growth, likely driven by sales of OSIM chairs through Brookstone.

Conservative store expansion helped bottomline this year. One of the key features of the profit growth this year is the better margins. While 9M12 sales were up 9%, PBT was up by a higher 14%. Management scaled back on net store opening this year (+4 for OSIM stores), but at the same time was able to improve sales per store. The lower depreciation cost for capex has helped bottomline.

Positive sales for uDivine App. Given that massage chairs still form a large portion of revenue, we surmise that the recently Divine App massage chair has garnered positive sales since its introduction earlier this year. This affirms management’s success in giving the original uDivine a new lease of life. This kind of successful product innovation bodes well for a company which is a leader by far in its space. New products unveiled this quarter include uMist (a humidifier) and uBio (a wellness appliance which taps on bioenergy).

Buy ahead of 2013. This year, OSIM has bucked the trend of soft retail sales figure of Hong Kong/ China. We believe this shows that addressable market remains underpenetrated and sales momentum could improve further next year. We adjust FY12-FY14F earnings upward by 2-3% and peg our new TP of SGD2.10 to 16x FY13F, in line with historical average PER. Reiterate BUY.

Source: Maybank Kim Eng Research - 24 Oct 2012