Results Review

Osim International
Record earnings
Snapshot Recommendation Current Price Target Price No of Shares Market Cap Year Hi/Lo Buy S$0.95 S$1.19 447.4m S$425.0m S$1.36/0.805 P&L (Y/E Dec) Sales (S$m) Op profit Earnings EPS (Scts) EPS growth (%) FY2004 332.1 32.0 31.7 7.1 31.5 FY2005F 415.3 40.3 38.0 8.5 19.7

27 Jan 2005
FY2006F 518.0 49.2 44.3 9.9 16.5 Key ratios (FY05F) PER 11.2x P/BV 2.9x Div yield 1.8% ROE 25.3% Gearing Net Cash Cur ratio 1.7x

Source: SIAS Research, Reuters

Company Update 4Q FY04 results S$m Sales Op Profit Earnings Net Margin (%) 4Q04 97.4 12.2 10.8 11.1 4Q03 81.5 5.5 6.7 8.3 % Chg 19.5 121.2 60.5 -

Outlook An even better 2005: After hitting record numbers in 2004, management expects this year to be even better, driven by expansion of outlets and product lines. Remodelling outlets: In an effort to increase efficiency and reduce cost, Osim has remodelled some of its outlets to Osim Focus outlets. This strategy will continue into 2005. Further expansion of overseas markets: Management plans to open approximately 40 outlets in China by this year to meet the strong demand for Osims products and services. In addition, its Global Franchise Markets (GFM) has just added Spain into its network. However, Spain may not contribute significantly to Osims revenue in FY05. Osim has 560 outlets globally as of December 2004. More products in the pipeline: Management reports that new products will be launched across all areas in FY 2005 and there will be at least one blockbuster product per quarter. Estimated capex of S$10-12m: Management has set aside capex of S$1012m this year to drive its expansion of outlets and products. This compares against S$14.4m in FY04.
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Record earnings: Earnings surged 61% to S$10.8m in the three months to December 2004, and hit a record S$31.7m for the full year. This is 8% better than consensus ISIEmergingMarketsPDF sg-sim from 203.117.25.65 on 2011-06-08 estimates. Strong sales: Revenue rose 19.5% to S$97.4m (also a record) in 4Q FY04. This was led by growth in North Asia (+14%), South Asia (+32%) and global franchisees (+33%). Overall, Osim achieved a compounded annual growth rate (CAGR) of 25% since FY 2000. Net profit margin leapt 11.1%: Notwithstanding the ongoing incubation and development expenses, and in spite of the rise in operating expenses, net profit margin rose a commendable 11.1% with better cost management. Since FY 2000, Osim managed to achieve a net profit CAGR of 35%. Strong cash flow: In the fourth quarter, Osim generated S$29.8m from operations, compared with S$1.6m a year ago. As a result, its balance sheet has been strengthened, with cash of S$61.4m, compared with S$26.3m in FY03.

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Risks S$1b revenue may not be achieved by 2008: Osim has taken five years to double its revenue to S$332.1m. It may have difficulties reaching its sales target of S$1b by 2008. Facing strong competition in all markets: As Osim grows, it will find an increasing number of copy-cats. For example, China has 15 massage chair makers which compete with Osim. In Singapore, unlisted firms like Oto also vie for market share. Thus to sustain its advantages over the other competitors, Osim needs to continually differentiate itself from the rest.

Valuation/ Recommendation Valuations: We forecast earnings will grow 19.7% to S$38.0m in FY05 and 16.5% to S$44.3m in FY06. At S$0.95, it is trading at 11.2x FY05 and 9.6x FY06 earnings. This compares against Eu Yan Sangs 8.7x and Global Actives 17.3x. Upgrade: Good growth, coupled with decent valuations, should propel the stock higher within the next 12 months. Upgrade from Hold to Buy. Our target price of S$1.19 is based on 14x FY05 earnings. Technicals Osim saw heavy volume recently, with share price moving up from S$0.83 to S$0.945. Once it passes S$0.955, the next target is S$1.00. Support is at S$0.925 & S$0.915.
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Unsuccessful launch of new products: Given the significant incubation and development expenses of new products, coupled with the risk that the new products may not be well-received in the market, Osim may not be able to ISIEmergingMarketsPDF sg-sim from 203.117.25.65 on 2011-06-08 introduce new products successfully into its markets.

Peer Comparison
Company Eu Yan Sang Global Active Osim Average
Source: Reuters

Price (S$) 0.395 0.22 0.95

Forward PER (x) 8.7 17.3 11.2 12.4

ROE (%) 23.3 11.2 25.3 19.9

Div Yield (%) 6.0 Nil 1.8 2.6

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Price-Volume Chart
Q/OSIL.SI, Close(Last Trade), Line 1/27/2005 0.965

Price SGD 1.25

1.2

1.15
1.1

1.05
1

0.95
0.9

0.85
0.8 Q/OSIL.SI, Volume(Last Trade), Line 1/27/2005 0.2090Milln

Vol 3M 2M 1M 0

Mar

Apr

May

Jun

Jul

2004

Aug

Sep

Oct

Nov

Dec

Jan

2005

Feb

Source: Reuters

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Disclaimer This research report is based on information which we believe to be reliable. Any opinions expressed reflect our judgment at report date and are subject to change without notice. This research material is for information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive or access this research material. It is not to be construed as an offer, or solicitation of an offer to sell or buy securities referred herein. The use of this material does not absolve you of your responsibility for your own investment decisions. We accept no liability for any direct or indirect loss arising from the use of this research material. We, our associates, directors and/or employees may have an interest in the securities and/or companies mentioned herein. This research material may not be reproduced, distributed or published for any purpose by anyone without our specific prior consent.

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