• ‘Challenging’ 1Q15
• New flagship product launched in Apr
• Looking towards a better 2H15

Weak 1Q15 results

Amid soft economic conditions for its five key markets, OSIM international Ltd (OSIM) saw a weaker set of 1Q15 results. Revenue was down 13.2% YoY at S$149.8m, forming 20% of our FY15 forecast. We had mentioned in our last report that the group may likely see a modest performance, particularly in its key market China. The muted top-line was also due to the absence of a major flagship chair launch, which would have otherwise been a growth driver. Bottom-line performance continued to be dragged by start-up costs from TWG Tea, higher wages and rental costs, as well as legal costs to a larger extent. As a result, PATMI decreased 53.1% YoY to S$13.5m, forming only 12% of our and Bloomberg consensus’ FY15 forecasts.

2H15 could be better

OSIM’s latest flagship chair, uMagic was recently launched in Apr this year with an introductory price of S$4,988, and it features ‘Magic Hands’ massage technology – a patented ‘Hand-Grip’ massage that offers a humanized massage technique. Management stated that they have received a ‘favourable response’ on this new product thus far. Given that the group’s earnings is particularly sensitive to new massage chair launches, we look forward to 2Q15 for some sign of validation that the new chair should drive growth for this year. With the launch of uMagic in China and other smaller products in the region slated from June-15 onwards, we think 2H15 could present a better picture as OSIM’s products also targets a more resilient affluent market.

Estimates for FY15/16F reduced

We also understand from management that the number of OSIM outlets, which stands at 560 as of 31 Mar-15, will likely remain flat for the year. On the other hand, TWG Tea still expects to open about 15 new stores this year, of which they have opened four (two in China, one in Thailand, one in Singapore) as of end-Apr to a total of 47 outlets. In light of the above, we have revised our forecasts downwards and derived a new FV estimate of S$1.87 (previous: S$1.97), based on blended FY15/16F EPS. Maintain HOLD. OSIM has also declared an interim dividend of 1 Scent/share and net cash remained at a good level of S$256m.

Source: OCBC Research - 6 May 2015