Record  quarterly  profit. OSIM  International  (OSIM)  registered  PATMI of SGD29.5m (+13% y-o-y) for 2Q14 and SGD58.4m for 1H14. Revenue for the quarter rose 10.4% y-o-y. Excluding  TWG, we estimate its  2Q14 revenue  from  North  Asia  rose  but  likely  declined  in  Singapore  and Malaysia,  which  we  partly  attribute  to  challenging  retail  conditions.  On top  of  that,  the  World  Cup  season  could  also  have  dampened  sales.GNC Taiwan, with 45 stores, has turned positive - which is encouraging - and may increase in profitability as it scales upoperations.

Strong line-up of new product launches this year.  Other than uTrack (a fitness walker) - which we highlighted earlier - OSIM will be launching uBuddy (an office massage chair) and uSqueeze  (a new leg massager) amongst others this year. We are excited about the new products which could  potentially  enable  it  to  tap  into  a  new  market.  For  its  nutrition business, it is launching LAC Panabloc, a natural painkiller.  

TWG Teaexpansion on track. Management targets to open another 12 TWG tea  outlets  in  2H14,  bringing  the  total  store  count  to  45.  The company is also creating new lines of Chinese luxury teas to tap into the North Asia market. While this could escalate topline growth, we expect TWG Tea's contribution to the bottomline to be more visible in FY15F as it has incurred country start-up costs in FY14.

Maintain BUY. OSIM's management declared an interim dividend  of 2 cents. We continue to like the company, given its position as  a unique brand  owner  in  Asia.  TWG's  potential  remains  undervalued  by  the market,  in  our  opinion.  Reiterate  BUY,  with  an  unchanged  TP  of SGD3.85, based on 20x FY15 P/E (ex-cash).

 

Source: OSK-DMG