• Double-digit 1Q14 YoY growth
• Interim DPS of 1 S cent
• Stronger contribution to come from uDiva

1Q14 results within our expectations

OSIM International Ltd (OSIM) started FY14 on a bright note, recording a 14.6% YoY and 14.7% YoY increase in its 1Q14 revenue and PATMI to S$172.6m and S$28.8m, respectively. This was within our expectations, with topline coming in 0.8% below our forecast but PATMI was 0.7% above. Growth was aided by continued traction in its core business and the consolidation of TWG Tea. TWG Tea has 30 outlets (as at end 1Q14), and OSIM plans to have 45 outlets by the end of 2014. An interim dividend of 1 S cent/share was declared, similar to 1Q13. Management highlighted during the analyst briefing that the prospects for its core business remain very positive. We expect this to be driven by its continued product innovation drive and productivity gains.

Refreshing its products pipeline

OSIM’s latest flagship product is the OSIM uDiva, a triple enjoyment sofa-loungermassager which is compact in size and equipped with a 3D Power-Ball massage technology. Retailing at an introductory price of S$2,588, it is endorsed by popular Korean actor Lee Min Ho, who won five awards recently at the 2013 SBS Drama Awards. The uDiva is introduced with the intention of replacing its uAngel, and management said that margins between the two products are comparable. Officially launched only in late Mar this year in Hong Kong, Taiwan and Singapore, and with a targeted upcoming launch in China and Malaysia, we expect more significant contribution from 2Q14. We believe this would boost OSIM’s sales and profitability ahead.

Maintain BUY

OSIM will be giving a call option notice on 8 May this year on its convertible bonds (CBs). We expect full conversion of its remaining CBs, which would result in the issuance of 43.4m shares at a conversion price of S$1.845. We have already taken this into account in our financial model (refer to our 5 May 2014 report). Hence our estimates are kept unchanged following this in-line set of results. Maintain BUY and S$3.18 fair value estimate on OSIM, pegged to 20x blended FY14/15F EPS.

Source: OCBC Research - 7 May 2014