• 2Q14 Revenue reported at $183mn (+10% y-y) and net profit at $30mn (+13% y-y) driven by OSIM products and TWG Tea
• Proposed interim dividend at 2 cents per share
• Expect growth momentum to continue with new products launches line-up in 2H14
• Maintain at Accumulate with unchanged TP of $3.15

What is the news?

2Q14 results revealed revenue at $183mn and net profit at $30mn, an increase of 10% y-y and 13% y-y respectively, driven by OSIM brand products (uInfinity, uDiva, uShape) as well as TWG Tea. OSIM continue to achieve revenue growth across the 3 regions with 55% of revenue coming from North Asia. An interim dividend of 2 cents per share has been proposed for this quarter.

How we view this

1H14 results were within our expectations, representing 49% of our full year earnings estimates. EBITDA margin remains resilient at above 20% with improved store operating metrics despite increasing labour and rental costs. Healthy sales momentum – The latest flagship product uDiva massage sofa was recently launched in some cities in China. The management is confident that uDiva will drive stronger sales with its unique feature as a massage chair, sofa and lounger that caters to users’ various needs at different times of the day. Another contributor to the sales momentum is the innovative fitness machine which was featured in popular Taiwan variety show Nu Ren Wo Zui Da (女人我最大) as the perfect companion for slimming, augmenting its popularity among the ladies in the region. OSIM continued to strengthen its competitive positioning with innovation and strong product pipeline. New products uBuddy (an ergonomics office chair that aims to provide comfort with back lumbar support and relaxation with massaging functions, targeting at the working class), uSqueeze Air (a derivative of uFootise) and a new blockbuster will be launched in 2H14 to sustain the revenue growth.

Investment Action

We continue to favour OSIM for its positive growth outlook, healthy balance sheet and strong cash flow generative business model. Maintain Accumulate rating with unchanged fair value to $3.15 based on DCF valuation, peg to 17.8x FY15E P/E. The valuation is attractive versus OSIM’s current valuation of 15.9x forward P/E. Potential catalyst: Acquisition of new brand to current portfolio.

Source: Phillip Securities Research - 1 Aug 2014