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After Falling 30%, Is OSIM Presenting Value?
Hot Picks, Tradeable | 30 October 2014
By: Tradeable
Articles (256)

OSIM International saw a major sell-down yesterday, 29 October 2014, falling by 5.6 percent to settle at $1.935 (OSIM opened the day at $2.05) by the time markets closed. The stock was heavily traded with over 30 million shares trading hands.

Today, the stock is continuing on its fall. At the point of writing, the stock has fallen by a further 4.9 percent and is trading at $1.84 with about 8.7 million shares traded. OSIM has fallen about 30 percent since the beginning of October 2014.

Here’s What We Know

  • OSIM reported its financial results on 28 October 2014, after trading hours. Analysts were quoted as saying that the results were a “major blip” in OSIM’s track record. The group reported a hefty 27.8 percent drop in net profits for 3Q14. The net profit drop to $16.4 million was a marked departure from OSIM’s long streak of growing profits.
  • Source: OSIM, highlights of OSIM's 3Q14 financial report

  • OSIM blamed the drop in net profit figures on TWG setup costs in North Asia as well as legal costs in two disputes. However, analysts are contending that OSIM’s core business seem to be slowing down as well.
  • Previously, OSIM’s management mentioned that it was experiencing lower sales in Hong Kong, Malaysia, and Singapore. However, with the release of the current report, it seems that the slowdown is more broad based and is stretching through OSIM’s key markets.

Tradeable’s POV

  • The blip in financial performance has triggered some panic selling from the market. This is a knee-jerk reaction. There are still many things going on for OSIM at this stage.
  • In particular, we feel that OSIM’s TWG expansion in China could reap substantial profits for the company. That said, we note that setup costs for the tea connoisseur will probably eat into bottom lines for a while. That said, we believe that TWG can become profitable in 2015.
  • At the same time, we note that OSIM’s cash balance is pretty large. This has been boosted by a debt issuance recently. We believe this amassed cash kitty is to be used for something large. And by large, we mean acquisitions. This will probably be a positive catalyst if OSIM’s management is able to play their cards right.
  • We thus view the financial results development as negative in the short to medium term for the stock. That does not take away the cheap valuations that the stock is currently trading at.
  • Remember, be greedy when others are fearful! Hence, we believe that investors should consider loading up on this fundamentally good stock while others are trying to avoid it like the plague.
  • Oh, did we forget to mention that there was a $0.01 dividend announced and a 3.11 percent yield at current price levels?

At the point of writing, the writer has queued and successfully bought a stake in OSIM International at $1.84 apiece.

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