OSIM shares plunge to one-year low

Singapore

AFTER being under pressure in the last few weeks, lifestyle products group OSIM International plunged to a one-year low of S$1.935 on Wednesday, down 31.5 cents or 14 per cent.

A record 30 million shares changed hands.

OSIM, which sells massage products, nutritional supplements and luxury tea, had on Tuesday reported a 28 per cent drop in net profit to S$16.4 million for its third quarter ended Sept 30, 2014.

The profit drop was due to a mix of legal costs and startup costs for subsidiary TWG Tea, as well as a weaker consumer spending environment in Asia. The company also said it is embarking on a period of increased investment across the group.

CIMB Research, which had a target price of S$4.05 just four days before the results came out on Tuesday, said the latest results were "a shocker". It slashed its price target to S$2.37.

"Legal fees should fade out next year but TWG setup costs could still intensify as TWG bulks up presence in Taipei, Shanghai and rolls out in Beijing, Guangzhou ... There will be a lower share price to buy into this company," analysts Kenneth Ng and Justin Chiam said.

DBS analyst Alfie Yeo kept his "buy" call with a lower target price of S$2.59. He expects growth to pick up on new massage products and the expansion of TWG Tea.

"We believe current valuations have priced in negatives given that valuations are below the peer average of 18 times (earnings)," he said.

OSIM's latest earnings report marked an end to a long-running streak of profit rises that had propelled its stock from S$0.05 in 2009 to S$2.90 by the end of April this year - up 5,700 per cent. It was the best stock performer in Singapore since the global financial crisis.

As expectations for the stock floated ever higher, some saw the decline coming. Macquarie Research analyst Sam Chan downgraded the stock to "underperform" in June with a target price of S$2.30. OSIM had been an impressive turnaround story and earnings growth was driven by increasing margins, but that story was over, he said.

He pointed to four factors: There are near-term headwinds in China; it is too early to be bullish on TWG; sales growth excluding TWG is slowing; and management has a poor record of meeting their guidance targets. His latest price target was S$1.90.

Sharp drops in OSIM's stock prices began earlier this month, prompting a Singapore Exchange query and a subsequent "trade with caution" advice.

After OSIM's results on Tuesday, there were two analyst downgrades to "hold", but six maintained their "buy" calls.

Founder and chief executive Ron Sim said at a briefing on Tuesday evening that the fundamentals of his firm remain strong, and margins for its core massage chair business are holding up.

Asked about the recent stock decline, Mr Sim pointed out that he is still holding on to his 62 per cent stake. People had complained that the stock ran up on low liquidity, he said. "Now you have liquidity."