Brokers' Take

OSIM International

Oct 11 close: S$1.88
CITIGROUP RESEARCH, Oct 10

OUR recent meeting with the management suggests that OSIM is on track with its efforts at Brookstone (BRK). Stock-keeping units (SKUs) have fallen below 800 (from over 900 previously), in line with plans to focus the product line-up. BRK is planning and gearing up for the traditional 4Q strength and has recently started marketing iGallop. To date, iSqueez and iSymphonic remain the top five items at BRK

Changes at BRK: Apart from modifying the sales incentive programme to reward staff more frequently (weekly or monthly vs only year-end previously), the group has also started streamlining the product offerings, modified store layouts to create more specified lifestyle sections, made slight changes to key personnel, and instituted new performance measures for staff.

Significantly above the Street: Our FY06E earnings estimates are 24 per cent above the market and are predicated on a stronger 2H for the core OSIM products (we forecast losses of S$14 million at the associate line from BRK). Recall that the group delivered profits of S$39.1 million in 1H06 (ex-BRK), and over the past two years has had an approximate 43:57 split in net income contributions.

Strength in smaller products: We expect strong contributions in 2H06 from the group's smaller product items that have so far performed well. uZap mini should be launched ahead of the Christmas season this year and based on its price point (which we think should be between S$100-200), the product should do well.

Risks: We maintain our forecasts but highlight risks to our estimates:

• later than expected launch of uZap mini;
• greater emphasis on mid-end massage chair iMedic PRO; and
• higher than expected R&D and A&P spend.

- Compiled by UMA SHANKARI