OSIM final dividend of 1S¢ was declared

TP S$1.59

OSIM reported a 1% YoY growth in 4Q11 earnings to S$17.1m on the back of an 8% YoY growth in revenue to S$142.7m. Stripping out the S$5m one-off asset gain in 4Q10, core earnings grew by 43%. FY11 earnings rose 38% YoY to S$69.1m, on the back of a 9% growth in sales to S$553.7m. This however fell short of our expectations by 8% and 6% respectively largely due to more aggressive store rationalisation which saw the number of OSIM outlets decline by 16 to 592 in FY11. We lower our FY12 sales and earnings by 10% and 8% respectively to take into account further store rationalisation, especially in regards to RichLife which currently has 104 outlets in 17 cities and would be scaled back to focus on seven key cities. Focus going forward would be on store profitability rather than the number of stores hence we expect further margin expansion in FY12. A final dividend of 1S¢ was declared bringing total FY11 payout to 3S¢.

We maintain our BUY call on the stock with a higher TP of S$1.59(previous S$1.55), as we roll over our valuations to 15x FY12F.

Key takeaways from briefing: 1) OSIM - targets 50 new outlets in FY12; 2) RichLife - Expect major store rationalisation as management scale back its presence from 17 cities to seven key cities to focus on profitability per store. It is expected to turn profitable in FY12; 3) GNC - management is excited over the recent acquisition of GNC Taiwan which it expects to improve sales per store significantly in addition to store count; 4) TWG - has turned profitable and management is targeting for two new stores in Hong Kong, China and Taiwan respectively.

Re-iterate BUY, 22% upside. The stock is trading at an attractive 12x FY12F P/E. Our TP of S$1.59 is premised on 15x FY12F P/E, a discount to its peers in the region which are trading at 20- 25x. We continue to like the stock for its strong stable of brands with dominant market positions in their respective fields. Furthermore, it is sitting on net cash of S$60m which will come in handy for M&A.

52 Weeks Range 0.920 - 1.740

Company Background
OSIM International aspires to be the global leader in healthy lifestyle products. We intend to enhance your quality of life through our four focuses - Health Focus, Hygiene Focus, Nutrition Focus and Fitness Focus. Currently, OSIM has established an extensive distribution network of more than 500 strategically located stores and shop-in-shops in Singapore, China, Hong Kong, Malaysia, Taiwan, Australia, Brunei, Canada, Indonesia, Ireland, Kuwait, Macau, Philippines, Saudi Arabia, South Africa, South Korea, Thailand, Ukraine, UAE, UK and USA.