2Q13 results broadly within expectations. Net profit for the quarter came in at SGD26.1m (up 16% yoy), against our preview expectation of SGD26.5m. However, this was achieved with a heavier weighting on margin enhancement rather than the double-digit sales growth we had expected. However, we believe this should be attributed more to weaker external demand, especially in North Asia. With the launch of key new products this year, we are confident the company is laying down strong foundations for future growth.

Bottomline growth driven by sales and margin growth. 2Q13 revenue grew 7% yoy, driven mostly outside North Asia which was up marginally. We believe uAngel, which was launched in the first quarter was a major contributor, and according to our understanding, volume sales are now comparable to the uDivine. EBIT margin grew from 19% to 21%, with the benefit of operating leverage as well as higher interest income and contribution from JV&associates.

Still potential for operating leverage. One key feature of OSIM’s bottomline growth over the past few years have been that of operating leverage and margin enhancement. We still see significant room for improvements from here. With a more rational store expansion plan, OSIM can easily achieve higher sales per store, with its brand equity and strong product line-up. The new uInfinity will be fully launched in the third quarter and with a higher ASP of around 25-35%, we are optimistic sales growth will accelerate in 2H13.

TWG contribution turning more meaningful. This quarter, the JV&associate profit line tripled to SGD1.5m. With the recent announcement that OSIM’s stake has been increased to 45% (North Asia implied 78%), this will likely become a more meaningful contributor.

Maintain BUY. Our bottomline estimates are mostly unchanged. With share price now firmly above convertible bond conversion price of SGD1.90, we factor in dilution for EPS. This results in a lower TP of SGD2.34, still pegged to 18x FY13F. The company also announced an interim dividend of SGD2 cents/ share for the quarter. Maintain BUY.

Source: Maybank Kim Eng Research - 31 Jul 2013