OSIM heading for more growth

 FY13 results were within expectations with recurring net profit up 16% YoY to SGD101.6m. It was a record year for OSIM, while 4Q13 was a record quarter in terms of revenue and net profit. Dividend for the full-year was unchanged at 6 SGD cts.

 Some one-off items were recorded during 4Q13, but their net impact was negligible. The company ended FY13 with a cash hoard of SGD299m.

 We expect profit growth to further strengthen in FY14 as the company consolidates TWG, now another pillar of growth.

FY13 results within expectations
OSIM’s FY13 revenue grew 8% YoY, with higher growth coming from
South Asia compared with North Asia, where the group rationalised its store network in China (opened 24 and closed 30). However, with a successful marketing campaign in 2H13, sales in China picked up in 4Q13 as evidenced by the 13% YoY growth in North Asia.

In our view, this market may surprise on the upside in FY14. The company also recognised some one-off items, though the net impact on P&L was negligible while the actual tangible item was limited to around SGD12m Brookstone bonds.

What’s Our View
We expect TWG to be a significant growth contributor going forward. Following the consolidation, we estimate TWG to contribute around 10% of group revenue currently, increasing to 20% by FY16E. With multiple growth engines in place and a very strong balance sheet, we believe OSIM will be better able to weather potential turbulence in its growth path. We keep our forecasts mostly unchanged and introduce FY16E. Our TP of SGD2.78 remains unchanged, pegged to 18x FY14E P/E.

One-off items
During 4Q13, OSIM recognised several one-off items. With additional provisions for inventory, their net impact on P&L was negligible while the tangible impact was limited to around SGD12m in Brookstone bonds which now cannot be retrieved. The items include:

1) Revaluation gain of SGD42m on TWG This was done by an independent audit firm BDO, taking into account the actual earnings potential of TWG vis-à-vis the value OSIM paid for it. Actual methodology was not disclosed.

2) Impairment and foreign translation loss of SGD31m for Brookstone Brookstone recently appointed Jeffries as a restructuring specialist in a bid to stem ongoing losses. Even though its value has been completely written off on OSIM’s books, there were still some residual foreign translation reserves which could not be written off prior to this. We estimate this non-cash item to be worth SGD19m. On top of this, OSIM still owns Brookstone Senior Debt of around SGD12m which was also written off during the quarter.

3) Impairment loss of SGD6.9m at ONI Australia The Australia GNC business has been underperforming, though it is not a significant contributor to the group. Last year, OSIM has sub-franchised this business to another party.