OSIM

OSIM: 4Q15 net profit crashed to $9.3m (-66% y/y), dragged by ONI Australia closure and TWG legal costs ($9m). Stripping these, full year core net profit would have been $67.5m (-34%), beating street estimates.

In the quarter, revenue slipped to $168.7m (-5%), dragged by lower sales in all markets except North Asia, amid the tepid retail environment.

Business segment revenue review in 4Q15:
OSIM: $101.2m (+18.9% q/q, -24% y/y, 60% of top line), saw decreased sales in SG/MY/China, except Hong Kong. uMagic failed to lift same store sales, which fell 21.5% y/y to $62,000/ month amid weak markets.

TWG: $24.6 (+45.3% q/q, +73.4% y/y, 14.6% of top line), on store expansions. Same store sales relatively stable at $113,000/month

GNC/ Richlife: $43.1m (+8% q/q, +46% y/y, 25.6% of top line), on better Taiwan performance. Same store sales stable (-3% q/q, +42.8 y/y) at $60,000/month on a highly recurring supplements business

Gross margin held steady at 72.2% (3Q15: 71.7%, 4Q14: 69.5%).

OSIM maintained net cash of $234m despite higher share buybacks.

On outlook, core OSIM ASEAN and China markets are expected to remain challenging going into 1H16, while TWG is expected is expected to maintain its torrid 15-new store a year expansion.

On the plus side, cost inflation could ease as management epects store rental and employee hiring conditions to improve.

Maybank-KE opines that OSIM could consider a privatisation and spin-off of TWG at this price, citing its <6x EV/EBITDA – a takeout sweet spot – vs peers’ 12x. Buying over minorities and CBs will need $424m for an all-cash deal at today’s prices, or $505m, if done at 8.5x EV/EBITDA ($1.20/share).

Financies are backed by OSIM’s $400m cash and cashflow from the chairs business. To privatise at a lower cost, the option to take shares in a separately-listed TWG instead of cash could also be offered.

OSIM is currently trading at 11.5x FY16e P/E.

Latest broker ratings:
Maybank-KE maintains Hold with decreased TP to $1.20 from $1.49
CIMB upgrades to Hold from Sell with TP decreased TP $1.00 from $1.13