3Q13 results within expectations. 3Q13 net profit came in at SGD22.7m (+16% yoy). 9M13 earnings now account for 72% of our FY13 forecast. The outlook for the business appears more bullish, with signs of faster growth in China and more concrete plans for TWG. We therefore expect the company to end 2013 strongly.

Moderate sales growth, driven by new products. Revenue rose 7% yoy, driven by North Asia (+8%) and South Asia (+5%). Growth was attributed to good sales on new massage chairs launched this year, the uAngel and the uInfinity. Other than Hong Kong which was down slightly, all other markets showed growth, in particular China. We expect a better FY14, underpinned by better sales from its existing products even though there will be no major product launch.

Positive impact in China from advertising campaigns. OSIM advertised heavily in this season’s The Voice of China and Duets, nationwide talent reality competitions, which started running in the third quarter. This has created considerable buzz for the brand. Together with better overall retail sentiments, we expect China to show further sale improvements going forward.

Outlook for TWG turning more concrete. From October onwards, the results of this associate will be consolidated, now that OSIM has increased its stake to 53.7%. Given that the business is also reaching a critical stage of profit growth, we expect TWG to be another strong leg of growth from FY14. We factor in only a conservative contribution into our estimates and will revisit as progress is made. Next year, the company expects to open 10 new outlets (currently 22), including the first outlets in North Asia.

Reiterate BUY with higher TP. We raise our FY14-FY15 estimates by 3%, mainly to factor in higher contribution from TWG. We roll over the base year for our TP to FY14, while maintaining the PER at 18x, giving us a SGD2.78 TP. With a stronger growth profile, we believe the stock will see further re-rating over the next 12 months, above its historical mean of 16x since early 2008.  

Source: Maybank Kim Eng Research - 1 Nov 2013