OSIM

OSIM: made a good comeback in 4Q14 to beat street estimates. 4Q14 net profit eased 1% y/y to $27.4m, but comparing core net profit rose 17%. Relative to the weak 3Q, profit surged 71%. FY14 core net profit climbed 5% y/y to $102.8m. Prudent cost management is the key. 4Q sales were flat y/y at $177.7m with weak chair sales offset by TWG’s 8% contribution to group revenue. Geographical breakdown was unchanged, but is facing headwinds in pushing chair sales in its key markets. In the quarter, OSIM closed another 7 unprofitable stores in China, replacing them with 5 new stores. Total number of outlets as of Dec14 is 561, down from 590 a year ago – an indication of robust performance management and discipline. To invigorate its mildly contracting core massage chair business, OSIM will be introducing a series of more affordable chairs and devices, starting with the recently soft-launched uHip (~$290). Startup and operational cost pressures came from TWG as expansion continues. After adding six new outlets in 4Q (total 43), there are 15-20 new stores are in the pipeline for 2015. Our house believes higher investments and pre-operating costs will be incurred as TWG expansion continues, but will be packed mostly in 1H15 due as its central-kitchen construction in Guangzhou and Beijing completes. Hence TWG is poised to for strong returns 2H15 onwards. The company is good stead financially, with a net cash position of $242m. Management expresses optimism in its outlook and maintains 2¢ final dividend. Maybank-KE sees OSIM as a strong recovery candidate in 2015, and share buybacks should provide further support. The stock trades at 14x PER with 3.2% yield. Latest broker ratings: Maybank-KE maintains Buy with TP of $2.55 UBS maintains Buy with TP lowered to $2.60 (from $2.70) CIMB upgrades to Add with TP lowered to $2.35 (from $2.37) RHB rates Buy with TP of $2.30 Credit Suisse maintains Neutral with TP lowered to $2.05 (from $2.45) OCBC maintains to Hold with TP of $1.97