OSIM: According to a report by Taiwan's Food and Drug Administration, the agency has found excessive levels of pesticide residues in OSIM’s majority-owned TWG Tea's "Chamomile Green Tea" that was exported from India.
https://consumer.fda.gov.tw/Food/detail/UnsafeFoodD.aspx?pid=4795
While OSIM has made no official announcement on this issue, a spokesman from TWG Tea has reassured consumers that the product in question had passed Singapore tests but was rejected in Taiwan due to differing tests conducted on its products in different territories.
UOB Kay Hian cited that the TWG Tea segment currently forms less than 10% of OSIM’s revenue but due to the initial set-up costs and legal expenses, it has yet to be profitable.
In the near term, while there may be reputational risks with regards to TWG Tea’s products, but house believes TWG Tea will take this opportunity to implement stricter checks on its suppliers to prevent such cases from occurring again.
On the larger picture, UOBKH thinks investors should be more concerned over the weaker retail outlook as OSIM's core earnings have been affected by a slowing economy in the last few quarters.
House maintains HOLD and TP of $1.56. OSIM is set to report its 3Q15 earnings this late-Oct to early-Nov.
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