OSIM’s 3Q earnings down 27.8% as chairs remain unsold

And TWG Tea incurs expansion costs.

Weaker economic climate and property markets in core markets are pointing to soft chair sales in 3Q.

According to a report by Maybank Kim Eng, 3Q14 topline was up 3% YoY but down 13% QoQ due to soft chair sales in core markets. Net profit (-28% YoY, -45% QoQ) was affected by costs for TWG Tea’s expansion in Taiwan and China and from two lawsuits in Singapore and HK.

OSK-DMG, meanwhile, reports that earnings fell 27.8% YoY to SGD16.4m, partly dragged down by legal costs. Its 9M14 net profit now makes up 63% of consensus FY14 net profit and it is not likely to achieve earlier forecasts.
Maybank KE adds that TWG will expand further in 1H15 in Guangzhou, Beijing and HK. Start-up costs will stem from the building of warehouses & central kitchens and hire & training of serving staff. 

However, as TWG is expected to add more faster-breakeven retail-only stores, we expect scale economies to kick in, likely in 2H15. To further mitigate the expansion costs, OSIM intends to build its international franchisee business which does not involve heavy start-up expenses.