Broker's take: DBS issues 'buy' call on OSIM

DBS Group Research has upgraded OSIM International to a "buy" (from "fully valued") with a target price of S$1.28, pointing to attractive valuations.

"Our positive view is based on earnings bottoming out and attractive dividend yield," said analysts Alfie Yeo and Andy Sim.

"With earnings decline seen projected to stabilise and its net cash of S$200 million, we see limited risks of dividend cuts at this stage. Downside risk should therefore be minimal."

The counter closed at 94 cents on Thursday but rose in trading on Friday morning to a high of S$1.075. It was trading at S$1.01 at 2.05pm.

"We are now less pessimistic on earnings visibility going forward," they wrote in the report. "OSIM will launch new products, expand franchise markets and adopt a more dynamic approach to marketing this year. At GNC, closure of GNC's loss making Australian business will help the bottom line. TWG will continue to expand by 15-20 stores this year, while legal fees are likely to be lower this year."

On Thursday, OSIM reported a 66 per cent drop in net profit to S$9 million for the fourth quarter ended Dec 31, 2015, which is traditionally a strong quarter for retail.

Lower profits were also due to a one-off S$5.6 million loss from the closing down of underperforming nutrition subsidiary ONI Australia, and legal fees of S$3.4 million related to luxury tea segment TWG Tea.

Mr Yeo and Mr Sim said, however, that core earnings at S$18 million - stripping out one-off items - were above expectations.

Revenue fell 5 per cent to S$169 million from S$178 million a year ago.

OSIM proposed a final dividend of two cents per share, taking the total dividends for the year to six cents.