Weak discretionary spending clouds OSIM’s near-term outlook

TWG’s start-up costs will also weigh on margins this year.

OSIM’s near-term outlook is clouded by weak discretionary spending in its core markets of Singapore, Malaysia, Hong Kong and China, a report by DBS revealed.

Real wage growth in Singapore has declined while discretionary spending in Malaysia is expected to be weak on lower fuel subsidies and upcoming GST implementation.

Meanwhile, Hong Kong registered its lowest retail sales growth since 2009 in 2014 while China’s ongoing anti corruption campaign will dampen consumption for discretionary high end goods such as OSIM’s massage chairs.

Following two quarters of weakness in massage products, OSIM’s growth will further be stunted by TWG Tea’s start-up costs. Legal costs in Hong Kong and Singapore could also add to higher expenses.

“However, we expect cost pressure to ease by FY16F as new TWG stores contribute positively and Hong Kong’s legal suit concludes. This should help earnings growth to accelerate,” stated DBS.