Brokers' Take
OSIM International
Feb 1 close: S$1.05
CITIGROUP RESEARCH, Jan 31
Feb 2, 2007
The Business Times
MODIFICATIONS: We have (1) slashed our FY06E to FY08E earnings estimates by between 36 per cent and 40 per cent, (2) lowered our target peg for the group from 14x to 12x, (3) raised the risk profile for OSIM from Low Risk to Medium Risk, (4) rolled over our target peg from Jun-07 to Dec-07, and (5) lowered our 12-month target price from S$1.62 to S$0.96. Maintain Sell.
Profit warning: OSIM has issued a profit warning for FY2006, guiding net profit to decline by between 20 per cent and 28 per cent year-on-year. This, we believe, is a major disappointment to the group and goes against its previous long-term growth guidance of 20 per cent to 30 per cent per annum. OSIM cited continued problems in North Asia over the impact from copy products and losses from Brookstone.
Brookstone bleeds: Despite positive same-store sales growth (improvement over the negative 8 per cent in 2005) and Ebitda improvement in 2006, interest expenses at Brookstone and OSIM Brookstone JV resulted in losses. This suggests sales were lower than management's expectations.
Double hit in North Asia: In Q306, unsubstantiated product claims by domestic competitors in China triggered sanctions by the authorities and negative reports in the media. The negative sentiment continued to affect sales in Q406.
Advertising and promotional expenses were accordingly raised to boost confidence, thereby affecting margins. We think there could be a possibility of this problem spilling over into 2007. Maintain SELL.
SELL
- Compiled by UMA SHANKARI
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