OSIM International: Scouring for acquisition targets as cash grows (DMG)

(BUY, S$1.55, TP S$1.84)

OSIM reported a 55% YoY jump in 2Q11 PATMI to S$19m, which were in-line with expectations with 1H11 PATMI of S$39m (+93% YoY) accounting for 53% of our FY11F estimates. Looking forward we expect 2H sales to be driven by new product launches which includes uDivine Sport, uJazz, uPapa Music Synch and Zhi, an energy drink. We expect its cash coffers to grow to S$300m by year end, which will come in handy for M&As. It is currently trading at an attractive 15x/13x FY11/12F P/E, below the average 18x its regional peers are trading at. We continue to like the stock for its strong stable of speciality brands in which it has dominant market positions in. Re-iterate BUY with TP of S$1.84, pegged to 18x FY11F earnings.

In-line with estimates. 2Q11 revenue of S$139m (+6% YoY) and PATMI of S$19m (+55% YoY) were in line with expectations. 1H11 revenue of S$287m (+11% YoY) and PATMI of S$39m (+93% YoY) accounted for 46% and 53% of our FY11F estimates respectively. 1H11 EBIT margins stood at 18%, (+8ppt YoY) with PATMI margins at 14% (+6ppt YoY). Margin expansion continues to be maintained from a better product mix and shift of manufacturing from Japan to China.

Sitting on a growing cash-pile. As at 30 Jun 2011, OSIM has net cash of S$58.7m (8 S¢/share). Its convertible bonds listed in July fetched S$120m while its TDR listing, extended till 28 Oct 2011, is due to raise S$76m. Coupled with net operating cash flows of ~S$20m for the year, we should expect it to have ~S$300m in cash by year end.

RichLife to be profitable by next year. RichLife has 110 outlets currently and targets 162-180 outlets by year end. Aggressive advertising and promotion will be carried out in Q3 and Q4 and the business is expected to be profitable by next year.