Towards Financial Freedom
OSIM International - Muted Spending Environment
We expect the discretionary spending environment to remain muted in OSIM's core markets in 2015 and reduce our profit estimates accordingly. Maintain BUY, with a lower SGD2.30 TP (from SGD2.75)(16.2% upside). Nonetheless, we believe the company remains wellpositioned for growth when the market picks up, given its market leadership position and solid balance sheet for potential acquisitions.\
Spending environment remains weak. In 2015, we expect the discretionary spending environment in 2015 to remain muted in OSIMInternational's (OSIM) core markets. China's anti-corruption drive does not affect OSIM directly, but the overall lower spending and tourism will put pressure on sales growth within Mainland China and Hong Kong. These markets together account for around 35-40% of group revenue. Similarly in South-East Asia, the quiet property market in Singapore and impending goods and services tax (GST) imple mentation in Malaysia will weigh down on discretionary retail spending.
New digital marketing strategy. In conjunction with a new massage chair in early 2015, we expect management to roll out a new digital marketing strategy. Given the increasing importance of online media/ecommerce, we welcome this evolution from OSIM's previously successful marketing campaigns, which were more focused on traditional media and celebrity endorsements.
TWG Tea Co loses appeal in Hong Kong. In Dec 2014, subsidiary TWG Tea Co lost in the Hong Kong Court of Appeal against an early ruling that its abbreviation infringed upon an existing logo. Management has not decided whether to pursue the matter further at the Court of Final Appeal or change the logo to another registered trademark, TeaWG, in Hong Kong. Notwithstanding this, TWG Tea Co's other expansion plans remain on track.
Reducing our estimates, but Maintain BUY. We reduce our FY14 estimates by 8% to account for a weaker 4Q and FY15F-16F by 12-15%. Our TP of SGD2.30 (from SGD2.75) is now pegged to a 15x ex-cash FY15F, in line with regional peers. The company still has a solid balance sheet, with net cash of SGD237m.
Source: OSK-DMG
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
