• ONI Global (Australia) Pty Ltd is put under the administration of Pitcher Partner, which may lead to ONI Global exiting the Australian nutrition market.
• The move is viewed positively.
• We maintained our TP at S$1.44, with potential upside of 48%, we upgrade to “Buy” rating

What’s new?

A combination of a weak economic environment and a fluctuating exchange rate has cost ONI Global (Australia) Pty Ltd about S$10.5 mn losses over the past 3 years.

As such, ONI Global has decided to review options for the future of its GNC Australia nutrition operations.

Pitcher Partners has been appointed as an administrator to review options which might include the sale of the business, or part thereof, or an orderly voluntary winding up of ONI Australia.

Restructuring plan

The Group has been restructuring both its OSIM and GNC/RichLife since early 2015.

The total number of GNC/RichLife stores has went down to 214 as of end-Sept from 238 stores in the beginning of 2015. Its nutraceutical segment contributes at least onefifth to its total revenues. ONI Australia operates 27 GNC LiveWell stores, which accounts for ~11% of the Group’s total GNC/RichLife stores, as at end-2014.

How do we view this?

Starting afresh in 2016

a. Encouraging move as it will stem losses from its Australian nutrition operations, enabling the Group to reallocate resources to focus on growing the Group’s core profitable markets in Singapore, Malaysia, Taiwan and China. We expect these to have a positive impact on the Group’s profitability and growth.

b. Litigation burden to dissipate. As reported earlier, legal cost is expected to moderate in the final quarter this year.

Weakness lingers across the board, slow growth momentum in Asian market to continue into 2016. Weaker demand and fluctuating exchange rate continue to weigh on consumer sentiment as well as margins. Strategic store closing and introduction to a new blockbuster product could improve profitability of the Group’s core massage chair business.

TWG Tea business, pillar of support. More stores in the pipeline (targeting Hong Kong, Macau, and Shanghai), positive take up rate and market penetration by corporate customers as well as the Middle East market, should be able to bolster sales.

Awaiting news from its recently acquired associates. Although we do not expect any significant contribution from the HK-based cosmetics company Laboratoires du Palais Royal Limited and Singapore-based technology solutions provider Trek 2000, we are excited to see how the Group could capture the potential positive synergies.

Investment Actions

Our FY16E earnings of S$66.8 mn would translate to a forward 12x PER (33% discount to its 5-year average historical PER). OSIM share price has declined 52% from its peak of S$2.09 in Feb-15, we believe that the negative news from China slowdown were largely priced-in. Given a potential upside of 48% of our TP at S$1.44 now, we upgrade to “Buy” rating.

Source: Phillip Securities Research - 16 Dec 2015