Wednesday, September 17, 2014

OSIM's business not hurt by China slowdown, says CIMB

OSIM International’s business in China is still humming along despite a more competitive operating environment and a slowdown in consumer spending in certain sectors, according to CIMB.

While the downturn in China’s property sector is real, there has no noticeable slowdown in overall consumption habits in the world’s second-largest economy, where incomes are still rising, CIMB analysts Kenneth Ng and Justin Chiam say in a note to clients.

Beijing’s clampdown on corruption also does not affect OSIM’s China sales, as the massage chair maker’s products are typically bought for personal consumption and not for gifting, they add.

OSIM’s focus in China is on tier-1 and tier-2 cities, where the company has an average of 20 to 30 stores in each city, they note. In tier-3 cities, where incomes are lower, a store count of one to two is “good enough for now”.

OSIM’s planned rollout of its TWG brand is also on track. It now has 39 TWG outlets, up from 26 at end-2013, following recent openings of several stores in Guangzhou, Shanghai and Beijing.

TWG will likely have 42 to 45 TWG outlets by end-2015.

Despite their upbeat assessment of OSIM, Ng and Chiam have cut their price target for OSIM to $4.29 from $4.60 after lowering their FY2014 and FY2015 earnings estimates by 7% to factor in the impact of dilution arising from the company’s recent sale of zero-coupon convertible bonds.

Their “add” rating is intact.

Shares of OSIM are up 0.8% at $2.63 at 3:42 pm Singapore time.

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