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Maybank Kim Eng Research 2015-07-21: OSIM International - Lacklustre environment. Maintain HOLD with TP reduced.

Lacklustre environment 


  • Cut FY15-16 EPS by 16-19% on recent lacklustre consumer spending in China, Hong Kong & Malaysia. 
  • Next growth base still under construction. Recently acquired minority stakes in cosmetics & tech companies. 
  • Maintain HOLD till expansion over and/or regional consumer sentiment recovers. TP reduced to SGD1.75 from SGD2.08, still on 18x FY15 EPS, 20% discount to peer average. 


What’s New 


  • Discretionary spending in OSIM’s core markets remains lacklustre. 
  • China’s automobile sales fell 2.3% YoY in June, the first decline of this magnitude in more than two years. 
  • Demand appears to have been sapped by its stock-market rout. 
  • Hong Kong’s retail sales continued to drift down for the sixth consecutive month, excluding a CNY festive bump in February. 
  • Malaysia’s held up better up until 1Q15, according to Bloomberg, but could have contracted in 2Q due to GST, according to the Malaysia Retailers Association (MRA). 
  • MRA recently cut its 2015 retail sales projection for the third time, from 4.9% to 4% growth, on the back of MYR weakness. 


What’s Our View 


  • We cut FY15-16 EPS by 16-19% for lower same-store sales assumptions for North and South Asia. 
  • Our TP drops to SGD1.75 from SGD2.08, still on 18x FY15 EPS, 20% below peer average. 
  • OSIM is still building a base for its next growth phase, which involves expansion of its high-end TWG tea business. 
  • It also recently acquired minority stakes in HK-based cosmetics company Laboratoires du Palais Royal Limited (LDPRL) and Singapore-based technology solutions provider Trek 2000 (Not Rated). 
  • It paid USD2m for 21% of LDPRL and SGD11m for 8.8% of Trek. 
  • Trek is profitable but we understand that LDPRL is not. Until this base is fully built, we expect volatile earnings. 
  • We now expect FY15 net profit to fall 21% to SGD81.2m. 
  • 2Q15 results, due on 23 Jul, are likely to reflect this with a potential 33% YoY fall in net profit to ~SGD20m. 
  • Stay HOLD. Valuations are close to the 5-year mean of 14.4x EPS. 


(Gregory Yap) 

Source: http://www.maybank-ke.com.sg




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