By Kevin Tan
Thu, 1 Jul 2010, 09:36:41 SGT

We believe OSIM International Ltd, a specialty retailer of healthy lifestyle products, is set for another level of growth in 2010. After a dismal year in 2008 due to global financial crisis, OSIM quickly brought its 2009 earnings back into the black amid continuous efforts on product innovation and cost management. With the global economy continuing to show affirmative signs of improvements, we hence see potential in the group to rake up more sales going forward, given its huge network of outlets. Apart from riding on the economic uptrend, OSIM has also been actively beefing up its product range by renewing its product line to cater to the changing needs of consumers. This constant drive for product innovation, coupled with its promotional activities, competitive pricing and 30 years of corporate history, would likely enable OSIM to uphold its profitability. OSIM consistently trades at a discount to the peers’ average P/E (current and forward) despite delivering significantly higher ROE and net margins. We believe OSIM should trade at a premium to its peers and not at a discount, given its better margins, operating efficiency and ROE. We value OSIM using relative valuation and ascribe its five-year median P/E of 22x to our FY10F EPS. This yields a fair value estimate of S$1.22. With an upside potential of 34.8%, we initiate coverage on OSIM with a BUY rating.

Specialty retailer of healthy lifestyle products. OSIM International Ltd is the global leader in branded healthy lifestyle products. Its principal business is in the designing, developing, marketing and franchising of a comprehensive range of products, ranging from massage chairs, air purifiers to nutritional supplements. OSIM operates a wide point-of-sales network with over 1,000 specialty retail outlets worldwide. China remains its key target market, as the group is confident that it is able to leverage on the growing consumer market, after having spent 16 years there.

Positioned for growth. We believe OSIM is set for another level of growth in 2010. After a dismal year in 2008 due to global financial crisis, OSIM quickly brought its 2009 earnings back into the black amid continuous efforts on product innovation and cost management. With the global economy continuing to show affirmative signs of improvements, we hence see potential in the group to rake up more sales going forward, given its huge network of outlets.

Constant drive for product innovation. Apart from riding on the economic uptrend, OSIM has also been actively beefing up its product range by renewing its product line to cater to the changing needs of consumers. We believe the company’s constant drive for product innovation, coupled with its promotional activities, competitive pricing and 30 years of corporate history, would enable it to uphold its profitability.

Strong relationships with mall owners. Pertaining to its strategy to grow its businesses in China, OSIM also revealed that it intends to expand its presence in both first-tier and second-tier cities. Management highlighted that it has established strong strategic alliances with shopping mall owners like CapitaLand, Jusco and Parkson over the years, and that they would invite the group to set up its outlets whenever they open new malls. With such a relationship with renowned mall owners, we expect OSIM to execute its expansion plans in China with relative ease.

Initiate with BUY. OSIM consistently trades at a discount to the peers’ average P/E (current and forward) despite delivering significantly higher ROE and net margins. We believe OSIM should trade at a premium to its peers and not at a discount, given its better margins, operating efficiency and ROE. We value OSIM using relative valuation and ascribe its five-year median P/E of 22x to our FY10F EPS. This yields a fair value estimate of S$1.22. With an upside potential of 34.8%, we initiate coverage on OSIM with a BUY rating.