Initiate with Accumulate Rating: OSIM is a home-grown company with a pan Asian presence as a well-being and healthy lifestyle products retailer. Its business portfolio consists of three segments: (1) OSIM, a lifestyle products retailer specializing in massage chairs (2) ONI Global (GNC and RichLife), a nutritional supplements retailer and (3) TWG Tea, a luxury tea retailer.

Why Invest?

Sustainable growth traction. OSIM has achieved amazing results of 5 years of record profit and 20 consecutive quarters of bottom line growth after returning to profitability in 1Q09. OSIM has maintained its profitability traction with a more efficient cost control and operations management, a strong product pipeline, tighter control of channel distributions and strong branding. Since then, OSIM has managed to grow both its top and bottom line at 8% CAGR and 44% CAGR respectively over FY09-13. This year, OSIM will focus on 2 aspects for revenue growth: (1) to improve the sales per store and (2) to ramp up the number of TWG stores.

Premium branding, innovative products and strategic market positioning to drive revenue. OSIM has strong brand equity in the Asia region and continues to drive revenue growth with both new product launches and competitive positioning with better product mix to capture a wider target audience. For example, the compact design uAngel is priced at an affordable price of S$1888 to tap on a new market for young families who have space constraints at home. For the coming quarter, OSIM will launch an upgraded version of the uAngel chair. We believe the improved product will maintain its compact design with enhanced technological features and will achieve similar success as its predecessor. Other popular existing products such as uInfinity, uDivine App and uPhoria Warm will also contribute to the revenue.

Outlook remains favourable. OSIM focuses its operations in 5 markets: Singapore, Malaysia, Taiwan, Hongkong and China, with China being its largest market. China recently has unveiled its urbanisation plan to drive economic growth, aiming to enable 60% of her population to enjoy urbanised city living by 2020. This means that OSIM’s target group, the mid-to-high end income group, will expand considerably. The massage chair penetration rate is currently low in China, thus the potential growth for OSIM is promising. Furthermore, the expansion plans for TWG Tea across Asia could further propel earnings growth.

Investment Action

OSIM currently trades at a 17.3x FY14F P/E compared to peers’ 24.7x. We feel that the stock price may encounter a slight dip in near future due to the share dilution from the conversion of the convertible bonds. However, the long term outlook remains positive. We favour the stock for its (1) premium branding, (2) strong balance sheet and (3) experienced management team. We initiate coverage for OSIM with an “Accumulate” rating with a target price of $2.87 based on discounted cash flow (DCF) methodology.

Source: Phillip Securities Research - 31 Mar 2014