From  our  recent  visits  to  14  OSIM  stores  in  Hong  Kong,  Indonesia, Singapore  and  Malaysia,  we  found  that  uInfinity  has  been  enjoying good  take-up  rates  since  its  launch  while  uAngel  remains  popular. These fire up our  excitement on sales  for the upcoming  quarters, with anticipation of FY14F-15F profit growing 15% annually.  We like OSIM as it  is  a  proxy  to  the  region's  growing  demand  for  lifestyle  products. Maintain BUY, at a higher SGD2.60 TP.

A peek at 14 OSIM, 4 Ogawa and 2 OTO outlets

Our consumer analysts visited 14 OSIM, four Ogawa (OGAW MK, NR) and two OTO (6880  HK,  NR)  massage  equipment  retail  outlets  across  Hong  Kong,  Indonesia, Singapore  and Malaysia  earlier this month.  In terms  of  stores  visited  by country,  we
toured eight  OSIM,  three  Ogawa and  two  OTO  outlets in Singapore,  two  OSIM and one  Ogawa  outlet  in  Malaysia,  three  OSIM  stores  in  Hong  Kong,  and  one  OSIM outlet in Indonesia.

Our  channel checks suggest  that:  i)  uInfinity  is  drawing  a  good response, ii)  uAngel remains a fast moving item,  and iii) its closest competitor in Singapore is likely  to be Ogawa, whose latest product  sales  appear to have  normalised  after its May  launch. We set out the details of our channel checks in the table below.

Key Finding 1: Rousing response for uInfinity since launch

We note from our store visits that  the response for  uInifinity has been strong since its launch in August 2013  in Hong Kong, Malaysia and Singapore .  We were told that in Hong Kong, the beige color option was temporarily out of stock and the next available delivery date would be in  December. Meanwhile, the orange and brown color options can be delivered in about a  week although stocks  for both colours  were running low.

In Malaysia, we understand  that  sales had been positive,  with  an  average delivery time  of about one week. Separately, we  also gather  that  the waiting time for  uInfinity was around one month during its  initial  launch  in Singapore, but this  has normalised
to around  a  week  this month.  We  also  note  that  uInfinity  had  yet to be  launched  in Indonesia at the time of our ground checks.

Incidentally,  OSIM  held  a  roadshow  at  a  neighbourhood  mall,  Century  Square,  in Tampines in Singapore  that coincided with the  time we made  our channel checks. We  observed  the  traffic  flow  at  the  event  on  four  separate  occasions,  and  as
illustrated in the photos below,  found  the roadshow  very  well-received,  with many of the shoppers  stopping by the  company's  booth to  try out  its  new products,  uInfinity and uAngel.

Key Finding 2: uAngel still a favourite
From  our  interactions  with  the  sales  personnel,  we  found  that  uAngel  remains popular,  especially among young couples as well as small home owners who face space  constraints.  We  also  gather  that  this  group  of  customers  is  happy  with  the basic  massage  options.  Nonetheless,  uInfinity  remains  the  key  focus,  especially among  existing  massage  chair  users  who  are  looking  for  more  sophisticated functions.

Key Finding 3: Ogawa possibly the closest competitor in Singapore
Besides  OSIM  stores,  we  also  visited  three  Ogawa  and  two  OTO  retail  outlets  in Singapore, as well as one Ogawa outlet in Malaysia. We note that Ogawa launched a new massage chair under its Smart Delight series a few months ago at a price tag of around SGD6,988, similar to that of  uInfinity, while OTO's  highest  end  model  is  selling  at  around  SGD4,000.  Post  trade-in  prices  for OSIM's  uInfinity  ranged  from  SGD6,100  to  SGD6,600  while  those  of  Ogawa  were between SGD5,100 and SGD5,488. In terms  of space saving,  OSIM's uInfinity takes up only 0.8 square meters  of space while  upright, compared  with  1.2 sq  m  for  Ogawa's  Smart Delight  and 1.3 sq  m by OTO's Cyber Wave. We  observe  the  three  companies  have  slightly  different  marketing  strategies.  For instance,  Ogawa  adopts a product-centric model and uses word-of-month as its key marketing strategy.  Interestingly, we note  that  current  sales  at one of its  outlets  we visited have normalised since the product's initial launch. On  the other hand, our visit to OTO stores suggest that the company offered more products, eg treadmills, etc - while sales of its massage chair equipment appeared to lag behind those of OSIM and Ogawa.

Target customer base of 18m households by 2020

We  believe  OSIM's  strategy  of  using  celebrity  appeal  and  multiple  product  price points  will  help  the  company  capture  existing  and  new  opportunities  created  by growing wealth in the region.

Based on our  understanding that  OSIM targets consumers with monthly incomes  of around SGD3,500  and above in Singapore, we plot the number and percentage of households  with  annual  disposal  incomes  of  above  USD35,000  for  Hong  Kong, Malaysia,  Singapore  and Taiwan  in 2010 and 2020. For China, we use USD100,000 as a starting point given that most of the transactions are completed  in  cash  instead of the installment plans in its more developed counterparts.

Our findings suggest the number of households that  meet the criteria  is expected to shoot  up  by  69%  from  11m  households  in  2010  to  18m  by  2020.  Notably,  China accounts  for  most  of  the  gain,  with  an  increase  of  4.6m  households,  followed  by Malaysia's 1.3m, Taiwan's 0.8m, Hong Kong's 0.4m and Singapore's 0.3m.

Multipronged approach: i) celebrity appeal
To increase consumer awareness, OSIM has engaged Hong Kong artistes Andy Lau and  Sammi  Cheng  as  brand  ambassadors.  We  note  that  the  two  artistes  are extremely popular in the region, including in  China, Hong Kong, Malaysia, Singapore and  Taiwan.  In  addition,  the  company  is  extending  its  reach  in  each  market  by engaging local celebrities.

Multi-pronged approach: ii) multiple price points
Besides increasing its brand awareness via celebrity appeal, OSIM also uses multiple price points to expand  to  and penetrate its addressable markets. For instance,  the pricing of its massage chair series can range from uAngel's ~SGD1,888  to  uInfinity's SGD6,988.

We assume that  products in a lower price range  can  successfully  enlarge  its target customer  base  by  lowering  the  annual  household  disposable  income  threshold  to around USD25,000 (previously USD35,000) and above.  Similarly, the starting point for  China  is  reduced  to  USD75,000  (previously  USD100,000).  This  would  have increased its addressable market by more than 30%  -  from 11m to 14m householdsin 2010.

Source: OSK