OSIM

OSIM: CIMB did some forensic accounting on TWG, and says fears of TWG struggling was unfounded. OSIM’s 2013 annual report implied TWG made $6.3m of profit on $45.8m of revenue, but ACRA filings only had TWG making $2.6m profit on $37m revenues. Reasons for discrepancies are 1) the period of comparison are not the same, i.e. not fully year and 2) ACRA profits bear extra inventory costs associated with the set-up of new stores. CIMB normalized these factors and estimates that TWG’s 2013 revenue and profit would be +8%/+13% y/y respectively. More importantly, a sub-scale TWG’s net margins (13.8%) is closer to OSIM Group’s net margins (15%), even if it had been weighed down by the burden of legal fees from two ongoing court cases . CIMB forecasts TWG Tea’s FY14 sales and profit growth to be ~19%/27%. The concern however, would be the bread-and-butter OSIM business in core markets and effects of unrest in HK for 4Q. Meanwhile 3Q profit is expected to come in at $25.2-$25.4m CIMB maintains Add with reduced TP of $4.05, citing current valuations already reflects reduced expectations and is attractive for entry.