• Engaged in share buyback yesterday
• Could see modest performance in key market, China
• Ongoing disputes still unclear

Engaged in share buyback amid recent weakness

OSIM International Ltd (OSIM) was down ~3.1% yesterday while the counter had gone exdividend. Moreover, its share price has fallen by 10.3% from S$2.08 since 17 Mar. In view of this recent weakness, the group engaged in a buyback of around 1.3m shares at S$1.865/share yesterday evening, seeking to support the price level. Although there are no concrete explanations for the weakness, we note the latest changes to share ownership, such as The Capital Group Companies whom pared its stake in OSIM slightly from 5.021% to 4.994%, by selling 212.5k shares at S$2.0057/share on 30 Mar. We also think the weak start for Chinese macro data suggests the group may likely see a modest performance in China.

Taking cues from macro data for key market, China

China, being one of OSIM’s key markets, saw its retail sales rise 10.7% YoY in Jan and Feb this year according to the National Bureau of Statistics. With this data point reportedly coming in lower than consensus expectations and other weaker economic indicators may put a dent in confidence towards growth for OSIM here. We previously highlighted that the group had closed 32 non-performing OSIM outlets in China last year. In addition, there are also on-going expansion plans particularly in China for the group’s TWG Tea business, whereby management had mentioned that at least three stores are needed in a city to achieve breakeven. In the meantime, start-up costs, wages and rental costs may continue to hold back any significant bottom-line growth for this segment. Downside risks could come from unexpected non-performing store closures for TWG Tea and slowdown in pace of new store openings.

Maintain HOLD

We keep in mind that the group is still in the midst of two legal disputes, thus they may eventually incur legal costs, and potentially evoke kneejerk reactions to its share price. With 1QFY15 results to be announced in a month’s time, we are maintaining our HOLD rating with fair value estimate of S$1.97.

Source: OCBC Research - 7 Apr 2015