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Investors’ Corner (OSIM Int’l, SIA, UOB, Raffles Medical Group)
Investors' Corner | 07 August 2014
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OSIM International
Price – $2.87
Target – $3.85

OSIM International registered profits after tax and minority interest of $29.5m for 2Q14 and $58.4m for 1H14. Excluding TWG, we estimate its 2Q14 revenue from North Asia rose but likely declined in Singapore and Malaysia, which we partly attribute to challenging retail conditions. GNC Taiwan, with 45 stores, has turned positive – which is encouraging – and may increase in profitability as it scales up operations. We are excited about the launch of new products which could potentially enable it to tap into a new market. For its nutrition business, it is launching LAC Panabloc, a natural painkiller. Management targets to open another 12 TWG tea outlets in 2H14 and also create new lines of Chinese luxury teas to tap into the North Asia market. We continue to like the company, given its position as a unique brand owner in Asia. TWG’s potential remains undervalued by the market, in our opinion. Reiterate BUY. DMG & Partners (1 Aug)

Singapore Airlines
Price – $10.60
Target – $10.12

Singapore Airlines’ (SIA) 1Q15 revenue fell 4% y-o-y to $3.7b. This was due to a 2% drop in passenger yield to $0.109 and a 0.3 percentage point fall in passenger load factor to 77.7%, despite a 0.4% y-o-y growth in passenger carriage. Margins worsened as yields fell even faster than the drop in overall operating expenses during the quarter. SIA also booked $16m more losses from associates in the quarter, of which $14m was from Tiger Airways Holdings. 1H15 earnings are likely to remain muted, which can be attributed to the recent spate of aviation incidents temporarily dampening demand amidst a still weak consumption environment globally. We think SIA will post a better 2H15 as demand gradually recovers on better economic conditions worldwide. That said, the carrier, and indeed the sector in general, will remain vulnerable to demand shocks due to fuel price volatility and geo-political events. Maintain HOLD. DBS Vickers (31 Jul)

United Overseas Bank
Price – $24.05
Target – $23.55

United Overseas Bank’s (UOB) top line growth was not impressive. Loans growth slowed to 2.5% q-o-q. 2Q14’s fee income declined 1% q-o-q and prior guidance of 10% fee growth (2014) is now downgraded to “marginal growth”. 2Q14 was made to look good only on the back of trading gains, with $90-100m one-off gains, partly from the sale of UOL Group. While such gains tend to be recurring for UOB, the fact that ex-gains earnings would have been below par in 2Q14, serves to underscore the challenge of slowing core revenue growth. The second negative was rising non-performing loans (NPL) and credit costs. While UOB downplayed the cases, the fact is that the credit cycle has turned and credit costs will normalise. We deem current 1.4 times P/B premium valuations as unattractive, as challenges of funding costs, slowing fee growth, rising NPLs become apparent. Maintain REDUCE. CIMB Securities (31 Jul)

Raffles Medical Group
Price – $3.95
Target – $3.94

While 2Q14 earnings were within our expectations, they fell short of consensus estimates. The continued slowdown in its more profitable hospital services segment is a concern. Hospital services, which command lucrative profit before tax margins of 26% versus 9% for healthcare services, grew a mere 5% y-o-y, its second consecutive quarter of single-digit growth. Management attributes this to fewer visits by Indonesian patients, owing to a depreciating Indonesian rupiah against the Singapore dollar and the presidential election. Regulatory approvals have been impeding the group’s progress in China. It would take at least 3 years to commence operations even after approvals are obtained. Management does not view the opening of a new private hospital in Farrer Park as a threat, given the latter operates on a different business model. In our view, this new potential competitor still bears monitoring. However, we like its resilient earnings, backed by its corporate and foreign patient business and government initiatives. Reiterate HOLD. Maybank Kim Eng (30 Jul)

Singapore Airlines  9.240 +0.14 +1.54%   
Business: Co provides air transportation services to destinations spanning a network spread over 6 continents. [FY19 Turnover] SIA (80%), Budget Aviation (10.5%), SilkAir (6.2%), SIAEC (3.1%), others (0.2%).

Insight: May-19, FY19 revenue edged up 3.3% to $16.3b. Pass... Read More
United Overseas Bank  25.760 +0.06 +0.23%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More

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