Brokers' Take

OSIM International

April 26 close: $0.78
CITIGROUP RESEARCH, April 25

MASSIVE 1Q losses: OSIM delivered an extremely weak set of numbers for 1Q07 with revenues down 22 per cent year-on-year to $121.3 million, while its net income of $0.4 million in 1Q06 plunged into losses of $17.3 million in 1Q07. Ebitda margins took a dive from 15.1 per cent in 1Q06 to 3.9 per cent in 1Q07. While Brookstone delivered its fourth consecutive quarter of same-store growth, at OSIM's associate line, losses widened marginally - from $14 million in 1Q06 to $14.4 million in 1Q07.

Guidance removed: OSIM indicated that it continued to be affected by negative publicity through unsubstantiated advertising from other copy product companies. The management suggested that the industry is consolidating but appears unsure when this will be completed, and has accordingly removed its profit guidance. At its FY06 results, OSIM stated: 'Barring unforeseen circumstances, the group expects PAT in FY07 to be higher than FY06.'

Longer-term problem? We think OSIM's problems may not be a short-term issue. Supposing if the consolidation takes its course and several players are removed, if OSIM again prospers with product successes, we feel new players can emerge quickly, reverse-engineer its products, and possibly cause the same problems again through unsubstantiated marketing. OSIM indicates that it takes just about four to six months for its smaller products to be copied.

Maintain 'sell': We have slashed our earnings forecast substantially over the coming years by between 35 per cent and 42 per cent, and have accordingly lowered our 12-month target price from $0.96 to $0.55. OSIM's latest book value is $0.28.

SELL

- Compiled by MATTHEW PHAN