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Investor CentralOSIM International Ltd. - Will new massage chair design be copied in China?
9/1/2013 – OCBC says it believes OSIM International will benefit from a recovery in China, its largest market.
China’s retail sales exceeded market expectations by growing 14.9% YoY in November.
This was also the highest increment since March 2012.
According to Bloomberg’s average consensus estimates, China’s real GDP is now projected to increase 7.8% YoY in Q4 2012.
OCBC Research highlights this as a reversal of seven consecutive quarters of decelerating economic growth since Q1 2011.
It sings OSIM's praises as a luxury retailer in Asia specialising in well-being and healthy lifestyle products.
This, gushes the analyst, is supported by its innovation drive and effective advertising campaigns.
According to a study by Boston Consulting Group, cited by OCBC, the number of affluent consumers in China is estimated to increase substantially from 120 mln currently to 280 mln by 2020.
This expected increase in affluence is likely to fuel the rising tide of domestic consumerism in China – including lifestyle-related products such as massage chairs, surmises the analyst.
OCBC Research maintains a BUY rating with a target price of S$2.14 and says valuations are attractive.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. How soon will it launch new massage chairs to benefit from improving consumer sentiment in China?
According to Kim Eng Research, consumer surveys and property transactions in China point to a rebound towards the end of 2012.
It expects the cascading wealth effect to boost sales for discretionary products from OSIM this year.
Massage chair penetration rates in China are still at 1%, despite to pool of newly rich growing.
Therefore, the analyst expects OSIM to roll out two new massage chair designs in 2013.
These will be the successors to its uSoffa and uDivine lines, but with new designs and functions.
2. Will new products surpass historical sales trends?
The uDivine massage chairs were first launched in Hong Kong, Singapore and Malaysia in November 2010, fronted by Canto-pop singer Andy Lau.
Q1 2011 is therefore the first full quarter where the impact of new sales could be measured.
This quarter saw 12% QoQ sales growth.
This is unlikely to be just a seasonal impact given that both Q1 and Q4 have been strong historically.
On a YoY basis, there was also 16% sales growth in Q1 2011.
Therefore that makes us wonder whether to expect a similar type of impact from these new launches.
3. Is Osim really at attractive valuations?
The stock is trading at more than seven times its value.
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
Sources & further information
OCBC Research Report
Maybank Kim Eng Research Repor
DMG OSK Research Report
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