OSIM International posts 16.1% increase in 3Q13 PATMI

Achieved "solid" bottomline growth, reckons OCBC.

"Bottomline closely matched our forecast of S$23.0m although revenue was 5.3% below our projection. This was largely due to higher-than-estimated share of profits of associated companies (mainly from TWG Tea) and a lower effective tax rate," OCBC adds.

Here's the complete results analysis from OCBC:

3Q13 sales slightly below but PATMI within expectations. OSIM International Ltd (OSIM) reported a 16.1% YoY jump in its 3Q13 PATMI to S$22.7m on the back of a 7.5% increase in revenue to S$153.0m. Bottomline closely matched our forecast of S$23.0m although revenue was 5.3% below our projection. This was largely due to higher-than-estimated share of profits of associated companies (mainly from TWG Tea) and a lower effective tax rate. Management updated us that China contributed strongly during the quarter despite its high-end uInfinity massage chair being launched there only in Sep. Hence, we expect this momentum to continue for OSIM’s largest market in 4Q13, as there will be a full quarter of contribution from uInfinity. An interim dividend of S$0.01/share was declared, in-line with our forecast and this brings YTD declared dividends to S$0.04/share. For 9M13, revenue and PATMI grew 4.9% and 15.0% to S$469.1m and S$74.0m, respectively.

Now holds a controlling stake in TWG Tea. OSIM recently announced that it has increased its shareholding in TWG Tea Company from 45% to 53.7%, thus effectively granting it a controlling stake in TWG Tea. The purchase consideration was US$7.2m, which implies an equity valuation of ~S$103.4m for TWG Tea. Based on our channel checks, we note that TWG Tea recently turned profitable in FY13 (FYE Mar), with revenue of S$42m and net profit of S$5.6m. We believe this point of inflection presents immense growth potential for OSIM ahead, given that TWG Tea is still very much in a nascent stage of growth, in our view.

We take into account the consolidation of TWG Tea’s financials in our model. Our FY13 revenue forecast is trimmed only marginally by 0.2% as 4Q (calendar year) is seasonally TWG Tea’s strongest quarter (due to festive Christmas period). Our FY13 PATMI forecast is raised by 0.5%. For FY14F, our revenue and PATMI projections are lifted by 4.6% and 2.0%, respectively. We also roll forward our valuations on OSIM to 16.5x FY14F EPS, which correspondingly raises our fair value estimate from S$2.40 to S$2.56.