- Record quarterly profit of S$23mil in Q2 2012. Sales grew 12% yoy, whilst profit after tax grew faster at 20% yoy, improving OSIM's net profit margins to 14.6% from 13.8% in Q2 2011. Higher margins were attributable to higher sales per store and per man. OSIM is on track to meet our FY12F estimates'1H revenue and earnings met 49.4% and 53.4% of FY12F's targets.

- Sales growth was broad-based in nature, across multiple products and geographic regions. Sales breakdown by geography was similar to that of a year ago, suggesting a growing reception of its range of products across Asia.

- OSIM will reduce targeted net store additions in China from 50 to 30, preferring to be cautious with growth. Number of OSIM outlets in China now stands at 267 against 272 at end of 2011. Reasons are'1) higher store rationalization in search of more suitable department store operators; and possibly 2) concerns over an economic hard landing in China. Nevertheless, management mentioned that sales per store in China grew, in line with OSIM's reported broad-based growth in sales across various geographies. Our projected sales estimates remain unchanged despite lower net store additions on higher sales per store growth.

- Special dividend of 1c on top of 1c interim dividend.  A total of 2c of dividend per share was declared for 2Q. This means a total of 3c dividend for 1H 2012. We raise our FY12 DPS estimates to 5c from 3.5c per share, implying a 4.2% yield based on last close.

- Maintain BUY, raise FV by S$0.06 to S$1.66.  Rolling forward estimates by a quarter, we derive FV of S$1.66 based on  13.5x  weight-blended FY12F and FY13F EPS of S$0.123. We like OSIM for its earnings resilience despite worries of an economic slowdown. OSIM presents a capital gains potential of 40% and a dividend yield of 4.2%. It is currently trading at only 9.6x forward PER. BUY.

Source: AmFraser