• 3Q typically weakest quarter
• Closed stores for OSIM and GNC/Richlife
• Soft retail scene persists

Weak set of results

OSIM International Ltd (OSIM) reported its 3Q15 results that came in below expectations. Revenue fell 11% YoY to S$141.5m, making up 21% of our FY15 forecast. The retail environment in their core markets remained challenging for the group, and they had closed 14 OSIM outlets (mainly in China) as well as six GNC/RichLife outlets (mostly in Malaysia) during the quarter. uMagic continues to cushion the sales performance.

Gross profit margin was steady at 71.7%, but operating margin was lower at 6.4% vs. 13.9% in 3Q14 due to higher legal costs (~S$4m) and operational costs relating to TWG Tea. As a result, PATMI dipped 62% to $6.2m. The last time the group had recorded a similar level was back in 2009.

No clear signs for a pickup yet

We understand that management remains focused on sustaining performance for the longer run, and they continue to believe in China as having the most potential out of its core markets. As guided, OSIM’s newer products include massage accessories that are variants of existing accessories, as well as uDiva Classic that would be sold at a more sensitive price point of S$1999.

On the TWG front, two new outlets were opened in Pacific Place, and Harbour City in Hong Kong, bringing total store count to 49. The group will also likely expand their presence in Middle East next year, while the focus is still on Shanghai, China. However, given the soft retail scene, and keeping in mind that the smaller products were a drag for 2Q sales, we do not see clear signs for a pickup yet.

Slightly lower FV estimate

We have further reduced our FY15/16F estimates by 21%/6% and as we roll forward to 14x FY16F P/E, our fair value estimate is slightly lower at S$1.49 (previous: S$1.52). We keep our HOLD rating for now. OSIM declared an interim dividend of 1 S-cent/share, unchanged from last year.

Source: OCBC Research - 28 Oct 2015