• Results within expectations
• TWG Tea business on growth path
• Final DPS of S$0.02 declared

No surprises to FY14 results

After a widely disappointing quarter, there were no surprises for OSIM International Ltd (OSIM)’s overall FY14 results. 4QFY14 revenue and PATMI were slightly lower by about 1% YoY to S$177.7m and S$27.4m, respectively. This was largely within the street’s expectations. FY14 revenue rose 6.7% YoY to S$691.1m and PATMI was marginally higher by 0.6% YoY at S$102.2m. The group had also declared a final dividend of S$0.02/share, with total FY14 DPS of S$0.06 giving a yield of 3.2%. While it currently holds a significant cash balance of S$427.6m, no further insight was given on the potential utilization. We note that there were little changes in the group’s regional markets’ revenue contribution profile – 53% of FY14 revenue came from North Asia, which comprises mainly of China, Hong Kong and Taiwan. Management continues to keep their positive outlook on China, citing confidence in the launch of new products from OSIM as well as a resilient affluent consumer market despite closing 32 non-performing OSIM outlets over the year.

Similar pressures ahead with on-going expansion

TWG Tea remains as a fast growing business. TWG Tea opened 6 new stores in 4Q, bringing its total outlets to 43 as of end 2014. Management reiterated its target of opening 15-20 new TWG Tea stores mainly in Asia for 2015. In particular, new stores are expected in Shanghai and Guangzhou while Beijing could see the set up of a central kitchen in 1Q15. Start-up costs, wages and rental costs would still bite on profitability, albeit a tad positive minority interest recorded in 4QFY14 suggests profits were achieved that quarter. With that said, we keep in mind again of the potential legal costs that could be incurred from the two disputes the group is involved in.

Maintain HOLD

Based on the above, we raise our FY15F PATMI by 3.6% and also introduce our FY16 estimates. Following a change in analyst coverage, we keep the target peg of 14x to our FY15F EPS, while our fair value estimate on OSIM increases from S$1.90 to S$1.97. Maintain HOLD.

Source: OCBC Research - 4 Feb 2015