In‐line 1Q earnings growth of 13.8% yoy despite flat sales. OSIM delivered S$25.1mil of PATMI in the quarter, forming 25.7% of our full year PATMI assumptions. Sales, however, remained nearly flat. Earnings growth were attributable to higher gross and PBT margins, as OSIM continuesits strategy to grow sales per man and per store, while keeping production costslow. 1c dividend was declared for the quarter.

New chair launch uAngel expanded customer base. Through channel checks and management feedback, new chair uAngel which was first launched in January 2013 was met with strong take‐up rates. In addition, nearly 70‐80% of uAngel's customers were first‐ time buyers of massage chairs. This meant an expansion of customer base, and a potential source of recurring sales for future similar chair launches.

Maintain BUY, raise FV to S$2.34. We like OSIM's diversified and eclectic slew of healthy lifestyle consumer brands- OSIM brand of massage chairs which continues to contribute the bulk of earnings, a strong recurring income business in health supplements business GNC (and to a lesser extent RichLife which is now near break even), a fast‐growing high‐end TWG‐Tea business and Brook stone which offers a potential unlocking of value via listing. We now value OSIM at 16x of FY14F's EPS of 14.6c, deriving a fair value of S$2.34. Along with a potential 6c dividend, OSIM offers a total upside of 18%. BUY.

Source: AmFraser