• Double-digit 2Q14 YoY growth
• Interim DPS of 2 S cents
• More product launches to come

2Q14 results within our expectations

OSIM International Ltd (OSIM) reported 2Q14 results which came in within our expectations. Revenue rose 10.4% YoY to S$182.7m, while PATMI jumped by 13.1% to S$29.5m. This was driven by increased sales and profitability within existing outlets, as management continued its rationalisation strategy of closing down its non-performing stores. According to OSIM, there was a disruptive impact caused by the World Cup. Management believes it may have been able to ‘squeeze out’ another 5%-10% of sales if not for this event. For 1H14, revenue and PATMI increased by 12.4% and 13.9% to S$355.3m and S$58.4m, forming 47.7% and 49.5% of our FY14 forecasts, respectively. OSIM also declared an interim DPS of 2 S cents, similar to 2Q13.

Product innovation to continue

OSIM’s uDiva massage sofa, which is endorsed by popular Korean actor Lee Min Ho, contributed well to its 2Q14 results. Management expects sales to remain robust for the rest of the year. OSIM also has a healthy pipeline of new products to be launched across its business segments. It plans to launch uBuddy, an office massage chair which will be priced at S$1.2k-1.3k. A new flagship massage chair is also targeted to be rolled-out next year. For TWG Tea, there are currently 33 outlets, and management has a target of reaching 45 outlets by year end. This aggressive expansion plan would incur initial start-up costs, but we are positive on its medium-tolong-term contribution to OSIM’s earnings.

Maintain BUY

We raise our FY14 and FY15 EPS both by 1%, to account for a smaller-than-expected share base, as only 87.17% of OSIM’s previous convertible bonds (CBs) were converted into ordinary shares (we had assumed full conversion). Those CBs which were not converted had been redeemed by OSIM on 7 Jul 2014. As a result of our EPS forecast increase, our fair value estimate is also raised from S$3.18 to S$3.21. Maintain BUY.

Source: OCBC Research - 1 Aug 2014