Initiation: the second coming

Transcription

Consumer Discretionary / Singapore
OSIM SP
10 August 2015
OSIM International
OSIM International
Target (SGD): 1.88
Upside: 10.3%
7 Aug price (SGD): 1.71
OSIM SP
Initiation: the second coming
Buy
Outperform (initiation)
Hold
Underperform
Sell
1
• Premium retailer in the healthy lifestyle segment; share price is
down 40.6% since end-July 2014
• Net profit should pick up by 15.4% and 9.8% for 2016-17E,
driven by new product launches and the growing tea business
• Initiating with Outperform (2) rating and 12-month TP of
SGD1.88 (13.5% above the consensus mean)
2
3
4
5
How do we justify our view?
■ Catalysts
Shane Goh
(65) 6499 6546
shane.goh@sg.daiwacm.com
■ Investment case
The share price of OSIM, a retailer
of premium lifestyle products such
as massage chairs and luxury tea, is
down by 40.6% in the past year.
Poor sales in Asian markets and a
contraction in its operating margin,
have resulted in OSIM’s quarterly
net profit declining by 0.7-53.1%
YoY over the same period. Investors
have been asking whether and when
its earnings will bottom out.
In our view, OSIM should see a
steady improvement in its earnings
trajectory from 2016, led by both the
launch of new versions of its popular
massage chair and greater
diversification/penetration of its
premium tea business. We forecast
2016-17E net profit growth of 9.815.4% YoY, as we expect sales to
rebound from 2016, after falling by
5.6% in 2015E. We expect an
earnings recovery in 2016 to be the
key share-price catalyst, and
accordingly initiate coverage with an
Outperform (2) rating.
New products. OSIM launched its
latest massage chair, the uMagic, in
2Q15, and the results have been
encouraging, with this product
boosting overall revenue growth to
6.4% QoQ for 2Q15 and net profit
growth to 66.1% QoQ. In 2H15, OSIM
plans to release the uDiva Classic, the
sequel to its existing massage sofa.
The uDiva Classic would have a lower
price of SGD1,999 (vs. SGD2,588 for
the uDiva).
Stronger tea sales and
profitability. We expect TWG Tea
to be OSIM’s fastest growing
segment in 2014-17E, driven by: 1)
new store openings, and 2) higher
corporate sales. Apart from delays in
Beijing, TWG Tea looks on track to
hit its 2015 target of 15 news stores.
Management said that, overall, the
TWG Tea business was profitable in
1H15, propped up by South Asia. We
expect profitability to improve in
2016E, underpinned by: 1) a third of
its stores entering the post-gestation
period, and 2) better scale
economies.
■ Valuation
Our 12-month TP of SGD1.88 is
based on 2016E PER of 14.5x
(OSIM’s past 5-year mean). Our
2015-16E EPS are 4.1% and 8.1%
ahead of the Bloomberg consensus,
likely because we are more bullish
on its tea business.
■ Risks
The key risks to our positive call
would be: 1) a poor take-up rate for
new products, and 2) delays in store
openings.
Share price performance
(%)
(SGD)
2.9
105
2.5
91
2.1
78
1.8
64
1.4
Aug-14
50
Nov-14
Feb-15
OSIM Inter (LHS)
May-15
Relative to FSSTI (RHS)
12-month range
Market cap (USDbn)
3m avg daily turnover (USDm)
Shares outstanding (m)
Major shareholder
1.44-2.85
0.96
2.34
779
Mr. Ron Sim (65.6%)
Financial summary (SGD)
Year to 31 Dec
Revenue (m)
Operating profit (m)
Net profit (m)
Core EPS (fully-diluted)
EPS change (%)
Daiwa vs Cons. EPS (%)
PER (x)
Dividend yield (%)
DPS
PBR (x)
EV/EBITDA (x)
ROE (%)
15E
652
110
87
0.112
(12.5)
4.1
15.2
3.5
0.060
2.8
8.4
19.6
Source: FactSet, Daiwa forecasts
See important disclosures, including any required research certifications, beginning on page 37
16E
722
129
101
0.130
15.4
8.1
13.2
3.5
0.060
2.5
7.0
20.9
17E
768
142
111
0.142
9.8
10.7
12.0
3.5
0.060
2.2
6.0
20.5
OSIM SP
10 August 2015
Contents
Initiation: the second coming ........................................................................................................ 6
Brief company history ................................................................................................................. 6
Investment thesis ........................................................................................................................ 6
Product launches expected to drive sales recovery .................................................................... 8
Tea business brewing nicely ...................................................................................................... 12
Consumer feedback: what goes into buying a massage chair? ................................................. 14
Industry competitiveness........................................................................................................... 16
Financial position....................................................................................................................... 18
Positive FCF model .................................................................................................................... 18
Assumptions .............................................................................................................................. 20
Valuation ................................................................................................................................... 23
Risks to our call ......................................................................................................................... 25
Company background ............................................................................................................... 26
OSIM ..........................................................................................................................................27
TWG Tea.................................................................................................................................... 29
ONI Global ................................................................................................................................ 32
Minority stakes.......................................................................................................................... 32
SWOT analysis .......................................................................................................................... 33
Management ............................................................................................................................. 33
Shareholding structure ............................................................................................................. 34
-2-
OSIM SP
10 August 2015
1
2
3
4
5
Buy
Outperform (initiation)
Hold
Underperform
Sell
How do we justify our view?
 Growth outlook
 Valuation
 Earnings revisions
 Growth outlook
 OSIM: total store count
We expect OSIM’s net profit to recover from 2016,
driven by 2 catalysts: 1) new product launches, and 2)
new store openings for TWG Tea. OSIM launched its
latest massage chair, the uMagic, in 2Q15 and is looking
to release the successor to its massage sofa, the uDiva
Classic, in 2H15.
1,000
800
600
10
16
26
251
270
253
603
586
2010
2011
43
58
68
78
245
238
220
223
226
577
590
561
560
565
570
2012
2013
2014
2015E
2016E
2017E
188
400
529
We also expect a strong contribution from TWG Tea, set
to be OSIM’s fastest growing segment over 2015-17E,
driven by new store openings. Management aims to
open 15 new TWG Tea stores in 2015 north and south
Asia. It has opened 4 so far, with 11 more in the pipeline
for 2H15.
Source: Company, Daiwa forecasts
 Valuation
 OSIM: 12-month forward PER bands
200
0
2009
OSIM
We initiate coverage with a 12-month target price of
SGD1.88, based on 2016E PER of 14.5x (equal to
OSIM’s past 5-year mean PER). Our target price offers
potential upside of 10.3% from current levels, and is
13.5% above the consensus average. The street is mainly
neutral on OSIM (Buys: 3, Hold: 5, Sell: 1).
RichLife/GNC
TWG Tea
12M forward PER(x)
30
25
+2 stdev
20
+1 stdev
15
Mean
-1 stdev
10
-2 stdev
5
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
0
Source: Bloomberg, Daiwa
 Earnings revisions
 OSIM: Bloomberg consensus EPS forecasts (SGD)
The Bloomberg consensus has lowered its 2015-16E EPS
for OSIM by 38.3% and 40%, respectively, since the
company announced (on 28 October 2014) its first YoY
decline in net profit in 24 quarters for 3Q14. We believe
this is one factor causing the decline in its share price
since then.
Our 2015-16 EPS forecasts are 4.1% and 8.1% above
those of the Bloomberg consensus because we think we
are more bullish on the TWG Tea business contributing
to the bottom line. We believe the addition of our
numbers to the consensus numbers should result in a
technical upward adjustment in the consensus 2015-16
forecasts.
0.25
0.20
0.15
0.10
0.05
Dec-13
Mar-14
Jun-14
Sep-14
EPS Adjustments 2015
Source: Bloomberg
-3-
Dec-14
Mar-15
EPS Adjustments 2016
Jun-15
OSIM SP
10 August 2015
Financial summary
 Key assumptions
Year to 31 Dec
Total number of stores
OSIM stores
RichLife/GNC stores
TWG Tea stores
Revenue per store (SGD '000)
Gross margin (%)
2010
854
603
251
0
648
65.3
2011
866
586
270
10
644
68.9
2012
846
577
253
16
703
70.0
2013
861
590
245
26
759
70.3
2014
842
561
238
43
812
70.4
2015E
838
560
220
58
816
70.6
2016E
856
565
223
68
852
70.8
2017E
874
570
226
78
888
71.0
2010
298
169
42
509
15
(176)
0
(280)
67
(1)
1
68
(18)
0
50
50
0.074
0.074
0.066
0.020
67
79
2011
317
205
31
554
13
(172)
0
(295)
99
(2)
0
98
(28)
(1)
69
69
0.102
0.102
0.094
0.030
99
111
2012
335
230
37
602
15
(181)
0
(320)
115
(3)
2
115
(28)
(0)
87
87
0.118
0.118
0.110
0.060
115
127
2013
353
250
44
648
57
(193)
0
(385)
127
(0)
3
129
(28)
(0)
102
102
0.140
0.140
0.129
0.060
127
140
2014
366
279
46
691
19
(205)
0
(375)
130
2
1
132
(30)
(0)
102
102
0.134
0.134
0.128
0.060
130
152
2015E
357
281
14
652
15
(189)
0
(369)
110
2
1
113
(26)
0
87
87
0.112
0.112
0.112
0.060
110
132
2016E
368
303
51
722
14
(211)
0
(396)
129
2
1
133
(31)
(1)
101
101
0.130
0.130
0.130
0.060
129
150
2017E
384
330
54
768
15
(223)
0
(418)
142
4
1
147
(34)
(3)
111
111
0.142
0.142
0.142
0.060
142
165
2010
68
11
(16)
30
2
95
(12)
(3)
0
(16)
(25)
(23)
(13)
(3)
(64)
(5)
10
82
2011
98
11
(17)
(5)
12
99
(13)
(54)
(12)
(79)
117
4
(22)
(1)
98
2
121
87
2012
115
11
(27)
(8)
3
94
(13)
(26)
3
(36)
9
(14)
(36)
(3)
(45)
(4)
8
81
2013
129
14
(29)
2
(11)
104
(11)
(7)
14
(3)
5
(7)
(36)
(2)
(41)
6
66
93
2014
132
22
(26)
(18)
(2)
108
(19)
(5)
2
(22)
134
(12)
(45)
(3)
73
1
160
90
2015E
113
22
(28)
(3)
(4)
100
(16)
(3)
7
(12)
4
(29)
(47)
(5)
(76)
6
18
84
2016E
133
21
(31)
(7)
(4)
112
(16)
0
7
(9)
4
0
(47)
(5)
(47)
0
57
96
2017E
147
23
(34)
(4)
(5)
127
(18)
0
9
(9)
4
0
(47)
(5)
(47)
0
71
109
 Profit and loss (SGDm)
Year to 31 Dec
North Asia
South Asia
Other Revenue
Total Revenue
Other income
COGS
SG&A
Other op.expenses
Operating profit
Net-interest inc./(exp.)
Assoc/forex/extraord./others
Pre-tax profit
Tax
Min. int./pref. div./others
Net profit (reported)
Net profit (adjusted)
EPS (reported)(SGD)
EPS (adjusted)(SGD)
EPS (adjusted fully-diluted)(SGD)
DPS (SGD)
EBIT
EBITDA
 Cash flow (SGDm)
Year to 31 Dec
Profit before tax
Depreciation and amortisation
Tax paid
Change in working capital
Other operational CF items
Cash flow from operations
Capex
Net (acquisitions)/disposals
Other investing CF items
Cash flow from investing
Change in debt
Net share issues/(repurchases)
Dividends paid
Other financing CF items
Cash flow from financing
Forex effect/others
Change in cash
Free cash flow
-4-
OSIM SP
10 August 2015
Financial summary continued …
 Balance sheet (SGDm)
As at 31 Dec
Cash & short-term investment
Inventory
Accounts receivable
Other current assets
Total current assets
Fixed assets
Goodwill & intangibles
Other non-current assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Other non-current liabilities
Total liabilities
Share capital
Reserves/R.E./others
Shareholders' equity
Minority interests
Total equity & liabilities
EV
Net debt/(cash)
BVPS (SGD)
2010
73
47
38
11
169
19
17
35
239
15
31
80
127
0
2
129
72
36
108
2
239
1,260
(58)
0.161
2011
194
52
41
35
323
20
17
72
431
16
36
88
141
117
5
263
64
101
165
3
431
1,227
(61)
0.224
2012
202
54
40
49
344
21
20
86
471
25
40
82
147
117
7
271
65
132
196
4
471
1,226
(60)
0.270
2013
267
73
42
37
419
25
190
45
680
155
49
93
297
0
39
336
65
206
271
73
680
1,270
(113)
0.375
2014
428
72
43
47
588
31
181
54
854
17
45
96
158
168
36
362
114
324
438
54
854
1,121
(242)
0.567
2015E
446
78
40
42
606
34
172
61
872
17
36
103
157
173
34
363
114
341
456
53
872
1,102
(256)
0.602
2016E
503
84
45
43
674
36
164
62
937
17
40
104
161
177
34
372
114
395
510
54
937
1,049
(308)
0.674
2017E
574
87
47
44
752
37
157
64
1,010
17
43
104
164
182
34
379
114
460
574
57
1,010
984
(375)
0.759
2010
6.7
50.7
73.0
114.6
80.6
65.3
15.5
13.3
9.8
48.9
21.3
51.0
77.3
n.a.
26.4
25.3
1.3
88.3
27.1
6.2
2011
8.8
40.8
47.4
37.9
41.7
68.9
20.0
18.0
12.5
50.5
20.6
46.6
88.6
n.a.
28.7
26.0
2.3
53.2
29.5
6.5
2012
8.7
14.2
16.0
25.9
17.1
70.0
21.0
19.2
14.4
48.1
19.3
35.8
70.5
n.a.
24.0
24.6
2.3
42.6
50.6
6.1
2013
7.6
10.9
9.8
16.9
18.0
70.3
21.7
19.6
15.7
43.5
17.7
30.1
53.6
n.a.
21.3
23.2
1.4
286.0
42.8
7.0
2014
6.7
8.2
2.5
0.6
(0.7)
70.4
22.0
18.8
14.8
28.8
13.3
22.1
41.7
n.a.
22.8
22.4
3.7
n.a.
44.7
6.8
2015E
(5.6)
(13.2)
(15.4)
(14.4)
(12.5)
71.1
20.2
16.8
13.4
19.6
10.1
16.0
33.6
n.a.
23.0
23.2
3.9
n.a.
53.4
6.4
2016E
10.7
14.1
17.5
15.4
15.4
70.8
20.9
17.9
14.0
20.9
11.2
17.7
39.0
n.a.
23.0
21.4
4.2
n.a.
46.3
7.2
2017E
6.4
9.5
10.3
9.8
9.8
71.0
21.5
18.5
14.4
20.5
11.4
17.9
42.8
n.a.
23.0
21.8
4.6
n.a.
42.2
8.2
 Key ratios (%)
Year to 31 Dec
Sales (YoY)
EBITDA (YoY)
Operating profit (YoY)
Net profit (YoY)
Core EPS (fully-diluted) (YoY)
Gross-profit margin
EBITDA margin
Operating-profit margin
Net profit margin
ROAE
ROAA
ROCE
ROIC
Net debt to equity
Effective tax rate
Accounts receivable (days)
Current ratio (x)
Net interest cover (x)
Net dividend payout
Free cash flow yield
 Company profile
OSIM is a retailer of healthy lifestyle products such as massage chairs, premium tea and nutraceutical supplements. Its brands
include OSIM, TWG Tea, RichLife and GNC. As of 30 June 2015, OSIM has 827 outlets in Asia Pacific, Europe, the US and the
Middle East.
-5-
OSIM SP
10 August 2015
Malaysia, Taiwan and Australia. RichLife is OSIM’s
nutraceutical supplement arm in China.
Investment thesis
Initiation: the second
coming
In our view, OSIM should see steady improvement in
its earnings trajectory from 2016, led by both new
product launches of its popular massage chair product
and greater diversification/penetration of its premium
tea business. We forecast 2016-17 net profit growth of
9.8-15.4% YoY as we expect sales to rebound from 2016
after falling by 5.6% YoY for 2015.
With OSIM stock down 40.6% since endJuly 2014 and quarterly net profit
declining by 0.7-53.1% YoY, the question
investors are asking is whether and when
its net profit will bottom. We expect OSIM
to see a turnaround from 2016, led by
both new product launches and a greater
contribution from its premium tea
business.
Product launches to drive a revenue
recovery in 2016/17E
OSIM’s sales declined by 0.5% YoY for 4Q14 and by
12.9% YoY for 1H15, with South Asia (40.4% of sales)
seeing the most severe decline. (Note: South Asia is
OSIM’s second-largest revenue contributor, with North
Asia being the biggest, at 52.9%, and the Rest of the
World weight in with 6.7%. China, grouped under
North Asia, contributes around 20% of overall
revenue). We believe this weak performance is the root
cause of the tumble in OSIM’s share price since July
2014, while the recent stock-market volatility in Hong
Kong/China has not helped.
Brief company history
OSIM International (OSIM) is one of the top lifestyle
companies in Asia in terms of brand recognition,
manufacturing and distributing massage chairs, fitness
equipment, nutritional supplements and luxury tea. Its
brands include OSIM, RichLife, GNC and TWG Tea.
The company had 827 outlets worldwide as at 30 June
2015, with its 5 key markets constituting Singapore,
Malaysia, Hong Kong, Taiwan and China.
Nonetheless, we look for sales to recover to 10.7% YoY
growth for 2016 and 6.4% YoY for 2017, on the back of
the launch of new massage chairs in 2015. We note that
there has been a strong correlation between sales
growth and the launch of new massage chairs in the
past.
The company sells its OSIM brand of massage chairs
and fitness equipment through self-owned and
franchised outlets. About 85% of its stores are directly
owned, with the remainder under the franchise model.
OSIM earns revenue through the sale of its products,
franchise fees or royalty fees. It has a 30% stake in a
China production joint venture, from where it sources
most of its products.
 OSIM: quarterly revenue post-product launch (SGDm)
190
180
uDivine
App
170
160
uDivine
150
uInfinity
uDivine
Sport
140
130
TWG Tea retails premium tea via self-owned and
franchise outlets. OSIM owns 69.9% of TWG Tea. As at
30 June 2015, 17 of its 47 outlets were self-owned, and
the rest franchised. TWG Tea generates revenue
through the retail sale of its tea, F&B offering and
franchise fees. It sources its raw materials mainly from
China, India and Sri Lanka.
120
110
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
100
Source: Company
OSIM’s latest massage chair, the uMagic, was released
in 4 of its 5 key markets (Singapore, Malaysia, Taiwan
and Hong Kong) in April 2015, and in China in June
2015. So far, the results have been encouraging, with
this product boosting the company’s overall 2Q15
The company’s GNC and RichLife brands are held
under a company called ONI Global, of which OSIM
owns 94.9%. ONI Global acts as a franchisee for USbased GNC. It procures products from the US parent,
and resells them to end-consumers in Singapore,
-6-
OSIM SP
10 August 2015
revenue growth to 6.4% QoQ, and its net profit growth
to 66.1% QoQ.
Additionally, OSIM will launch the uDiva Classic, the
sequel to its massage sofa, the uDiva, in 2H15. The
uDiva Classic should have a lower price point (23%
cheaper) compared to the uDiva. We expect the 2
product launches to be a positive revenue catalyst,
translating into 10.9% HoH stronger sales in 2H15.
Tea forecast to fuel future earnings growth
We expect TWG Tea to be OSIM’s fastest revenuegrowth segment over 2015-17E. For 2014, we estimate
that TWG Tea accounted for 12% of revenue. We expect
it to make up 17.6% of revenue in 2017E. This increase
is likely to be driven by: 1) new store openings, and 2)
higher corporate sales. We expect 35 new outlets to
open over 2015-17E. Management targets 15 new
outlets in 2015. It has opened 4 so far in 2015.
 TWG Tea: revenue and YoY revenue growth (SGDm)
160
100%
93.7%
140
81.1%
120
80%
100
60%
80
42.3%
60
40%
31.7%
40
20%
10.1%
0%
2017E
12.3%
20
0
2011
2012
2013
2014
2015E
TWG Tea
2016E
YoY growth (RHS)
Source: Company, Daiwa forecasts and estimates (for 2011-14)
 TWG Tea: number of outlets
90
78
80
68
70
58
60
50
43
40
26
30
20
10
16
10
0
2011
2012
2013
2014
2015E
2016E
2017E
We also expect stronger profitability from TWG Tea
compared to 1H15 due to: 1) a third of its stores opened
in 2014 reaching the post-gestation period, and 2)
improved economies of scale.
-7-
OSIM SP
10 August 2015
target audience for massage chairs (more well-to-do),
are less affected by economic uncertainty.
Product launches expected to
drive sales recovery
According to management, massage chairs account for
about 60% of the sales for its OSIM segment.
Historically, the launch of a new massage chair has
been followed by acceleration in the company’s top-line
growth. We expect this trend to continue going
forward.
It is well known that China’s economy is slowing, and
that this, coupled with a volatile stock market and its
anti-graft campaign, has seen discretionary spending
take a hit. China is one of OSIM’s key markets,
contributing about 20% of the company’s overall
revenue. And in recent years OSIM has been focusing
its expansion in China.
In 2H15, OSIM expects to launch its next generation of
massage sofa, the uDiva Classic, to replace the uDiva
(launched in April 2014).
Despite the China slowdown, we think there are several
factors working in OSIM’s favour: 1) product launches
at a range of price points (SGD428 for the uSqueez Air
leg massager to SGD1,999 for the uDiva Classic
massage sofa), 2) it is an established brand, and 3)
consumers are switching to healthier lifestyles.
Management said sales of the uDiva had fared similarly
to those of its predecessor, the uAngel (ie, nothing to
shout about). In our opinion, the key issue is price — at
SGD2,588, the uDiva is about 37% more expensive
than the uAngel (SGD1,888).
Product launches at affordable prices
The uDiva Classic would be priced at SGD1,999, in line
with the price of recent product launches (ie, the
uMagic and uSqueez Air). As a result, we think the
sales volume for the uDiva Classic will be stronger than
for the uDiva.
We expect a sales and earnings recovery in 2H15 (vs.
1H15) on the back of new product launches. OSIM
rolled out its latest massage chair, the uMagic, in its 5
key markets (Singapore, Malaysia, Taiwan, Hong Kong
and China) in 2Q15. The uMagic was launched in China
in June 2015, having been released in the other 4
markets in April 2015.
 OSIM: lower price points
Previous model
uDiva
uDivine
uSqueez
 OSIM: massage chairs launched since 2003 and forthcoming
launches
Date launched
Apr-03
Apr-04
Mar-05
Mar-06
Aug-06
Jan-07
Dec-07
Feb-08
Jul-08
Massage chair
iSymphonic
iSymphonic AV
iDesire
iDesire ROBO
iMedic Pro
uPilot
uSpace
uYoyo
uMedic
Apr-09
Jul-09
Jan-10
Jun-10
Nov-10
Aug-11
Aug-12
Jan-13
Jul-13
uDream
uDesire
uSoffa Petit
uSoffa
uDivine
uDivine Sport
uDivine App
uAngel
uInfinity
Apr-14
Nov-14
uDiva
uInfinity Luxe
Apr-15
2H15
uMagic
uDiva Classic
Description
Massage chair that synchronises massage and music
Massage chair that synchronises to audio-visual signals
Full-body massage chair
Voice-controlled full-body massage chair
Mid-range full-body massage chair
Designer massage chair with patented ROBO-Stic technology
Well-being chair
Massage and exercise chair
Multi-purpose full-body massage chair with retractable foot
rest
Hybrid 3-system family massage chair
Convertible massage chair
Massage sofa
Massage sofa with customisable design
Human-3D massage chair
Massage chair with appearance of sports car interior
Massage chair combined with mobile app technology
Massage chair
Massage chair that lets you download new massage
programmes
Massage sofa; sequel to the uAngel
Massage chair that lets you download new massage
programmes
Massage chair with magic-hand technology
Massage sofa; sequel to the uDiva
Price
SGD2,588
SGD5,488
SGD648
New model
uDiva Classic
uMagic
uSqueez Air
Price
SGD1,999
SGD5,288
SGD428
Variance
(28%)
(4%)
(34%)
Source: Company, Daiwa
Established brand
As with any luxury brand, perception is key. We think
OSIM has done an excellent job in cultivating its
premium status.
OSIM was cited as being the No.1 healthy-lifestyle
product brand by consumers across Asia in a 2008
survey conducted by market research firm Synovate
and supported by the International Enterprise
Singapore (IE Singapore).
On its website, OSIM claims to be the most preferred
massage-chair brand in Asia and the top mind recall
healthy-lifestyle brand in Asia. And we attribute this to
years of annual advertising and spending on
promotions (7% of revenue). Management said it
expects to maintain this allocation going forward.
However, the channel it spends it on is not fixed.
OSIM usually opts for print and TV advertising, and it
has consistently used celebrity endorsements to
generate interest in its products. Popular celebrities
include Andy Lau and Lee Min Ho.
Management said that compared with smaller-ticket
items, sales of massage chairs tend to hold up better
during times of economic uncertainty, given that the
-8-
OSIM SP
10 August 2015
 OSIM: celebrity endorsements
Celebrity
Jeanette Aw
Andy Lau
Lee Min Ho
Lin Chi-Ling
Sammi Cheng
S.H.E.
Fiona Xie
Louis Koo
Xiao S
Olivia Ong
Dennis Chew
Occupation
Actress
Actor
Actor
Actress
Actress
Singer
Actress
Actor
Talk show host
Singer
Actor
 OSIM: percentage of consumers in key markets who go online
daily
Device
uSqueez Warm
uDivine
uDiva
Usoffa, uSqueez
uAngel
uKimono
uZap
iMedic PRO
uPhoria
uPapa Music Sync
uSqueez Air
100%
80%
60%
40%
94%
84%
77%
84%
90%
20%
0%
China
For its latest uMagic ads, we note that OSIM has
deviated from its past product launches by not
incorporating a celebrity endorsement. Instead, it used
an unknown child to front its marketing campaign.
OSIM said it had wanted to highlight the product
features and thought that a celebrity would distract
customers from the main message.
Hong Kong
Daily
Weekly
Malaysia
Singapore
Monthly
Less than monthly
Taiwan
Source: Google’s Consumer Barometer
Note: data for 1 January to 31 March 2015
 OSIM: percentage of consumers who visit social networks on
their smartphone once a week
90%
78%
80%
67%
70%
 OSIM: child used to front launch of the latest uMagic
60%
68%
69%
Singapore
Taiwan
56%
50%
40%
30%
20%
10%
0%
China
Hong Kong
Malaysia
 OSIM: percentage of consumers who visit social networks on
their computers once a week
Source: Company
60%
50%
However, management said it is looking to relaunch
the uMagic in 2H15, potentially with a celebrity
fronting the next leg of the marketing campaign.
50%
45%
42%
41%
40%
Additionally, OSIM plans to roll out a marketing
campaign on social media platforms in 2H15, which we
think will further cement its reputation as the leading
massage-chair brand in Asia.
28%
30%
20%
10%
We view this move as a positive, as at least 77% of
consumers in OSIM’s key markets go online daily,
according to Google’s Consumer Barometer. At least
56% of consumers go on social networks via their
smartphones once a week, and 28% via their
computers. Hence, online advertising is the No.1 way
for many consumers to gain their first exposure to the
products they purchase.
0%
China
Hong Kong
-9-
Malaysia
Singapore
Taiwan
OSIM SP
10 August 2015
Asia’s middle-class prioritises health
 OSIM: online advertising is the number one way to reach out
to consumers
In November 2013, an AIA survey found that more
than half of the middle class in Greater China put
health and quality of life ahead of wealth or a
successful career. By market, the percentages were as
follows: 56% in Hong Kong, 69% in Mainland China,
and 62% in Taiwan.
100%
80%
60%
11%
21%
15%
24%
26%
31%
35%
33%
Hong Kong
Malaysia
40%
20%
17%
49%
 Greater China: proportion of middle class prioritising health
over wealth
80%
0%
China
Online
Television
Poster
In-store ads
Singapore
Magazine/Newspaper
69%
70%
Taiwan
Others
60%
62%
56%
50%
40%
Currently, OSIM stands ahead of its massage-chair
peers on major social media platforms, according to
Google’s Consumer Barometer. On Facebook, OSIM
Singapore and OSIM HK had 24,000 and 23,300 likes,
respectively, as of 3 August 2015, compared with
Ogawa World’s 5,200 and OTO Singapore’s 5,000. On
Weibo, a popular social-media platform in Hong
Kong/China, OSIM has 9,100 followers, vs. 5,500 for
Ogawa and OTO’s 1,100.

30%
20%
10%
0%
Hong Kong
 Social media: how OSIM stacks up
Platform
Facebook
OSIM Singapore
OSIM HK
Ogawa World
Ogawa Hong Kong
OTO Singapore
OTO Bodycare Hong Kong Ltd
Weibo
OSIM
Ogawa
OTO
No. of likes/followers
24,000
23,300
5,200
2,200
5,000
2,300
9,100
5,500
1,100
Source: Facebook, weibo. As at 3 August 2015
We expect OSIM’s strong brand presence in China to
enable the company to capture new city dwellers, on
the back of China’s ongoing urbanisation, as rural
households move into new urban homes and strive for
luxury goods that were previously unattainable.
In March 2014, China’s leaders unveiled a “National
New-type Urbanisation Plan” to lift the number of
people living in cities. The government intends to raise
the urbanisation rate from around 53% in 2014 to 60%
by 2020. According to consultancy EY, China’s
urbanisation rate grew from 17.9% to 52.6% between
1978 and 2012.
Mainland China
Taiwan
Source: AIA Survey – Hopes and Aspirations of the Middle Class in Greater China
Another AIA survey in October 2014 found a similar
emphasis across 6 ASEAN markets placed on health
and quality of life (61% placed it as one of their top life
goals) ahead of wealth. Two of them are key markets
for OSIM – Singapore and Malaysia. The others were
Indonesia, the Philippines, Thailand and Vietnam.
In our opinion, the priority placed on one’s well-being
will fuel demand for premium lifestyle products, such
as those offered by OSIM.
Growing urban private consumption in
China
McKinsey, a global consulting firm, projects China’s
urban private consumption to hit CNY26.8tn in 2022, a
10.3% CAGR from 2012, driven by affluent and upper
middle-class households. Affluent households in China
are defined as those with annual disposable income per
household of more than USD34,000, while upper
middle-class households earn USD16,000-34,000. We
think these are 2 of the segments that OSIM is
targeting.
In a separate report, McKinsey estimates that the
average household allocates 8% of its annual
consumption to recreation equipment. We think
massage chairs and its smaller peripherals fall into this
category.
- 10 -
OSIM SP
10 August 2015
Assuming the entry price for OSIM’s massage chair is
USD1.9k, we estimate a household would need an
annual income of around USD38k to be able to afford
it, ie, the affluent segment, according to McKinsey.
OSIM’s smaller-ticket items would also appeal more to
the upper middle class, in our view. This bodes well for
OSIM, given its strategy of targeting various segments
of the market through multiple price points.
Management said that the penetration rate of massage
chair in households is low for its 5 key markets, with an
estimated 10% in both Singapore and Hong Kong, 5%
in Malaysia and Taiwan, and less than 1% in China. The
penetration rate in a developed market such as Japan is
over 20% of households.
This implies great revenue growth potential in OSIM’s
markets, and the rise of affluence in its key markets,
China in particular, should fuel the increase in the
penetration rate going forward, in our opinion.
Management said that about 90% of its clientele in
China pay for goods in cash, compared with only 20%
in Hong Kong or Singapore. We think that the
aspiration for luxury products in China and shift in
mentality to accept monthly instalment plans bodes
well for OSIM.
 OSIM: proportion of credit card sales in China vs. Singapore
and Hong Kong
100%
10%
80%
60%
40%
80%
80%
20%
20%
Hong Kong
Singapore
90%
20%
0%
China
Cash
Credit
Note: data as a of 31 July 2015
- 11 -
Consum
mer Discrretionary / Singapo
ore
OSIM
M SP
10 August 2015
2
Te
ea busin
ness bre
ewing nicely
“W
While there iss tea, there is hope.” – Artthur W. Pineero.
Wee expect TWG
G Tea to be OSIM’s
O
next pillar of reveenue
gro
owth. We esttimate THAT
T TWG Tea acccounted forr
12%
% of OSIM’s revenue for 2014. And we
w expect thiss
business to acccount for 17.6
6% of revenu
ue by 2017E,
driiven by: 1) neew store open
nings, and 2) higher
corrporate saless.
1) Managemeent aims to open 15 storess in 2015. It
opened 4 o
outlets in 1H115, and mana
agement said
d it
is on track to open an additional
a
8 stores
s
by end
d2015. How
wever, difficullties in obtain
ning the
relevant ap
pprovals mayy lead to a de
elay in store
openings in
n Beijing. Fo
or 2016-17, we
w expect an
additional 10 stores pa..
 TWG
T
Tea: numb
ber of stores
9
90
7
78
8
80
68
7
70
58
6
60
5
50
1) Managemen
nt said it takees about 12-118 months fo
or a
store to hit operating brreakeven. As TWG Tea
opened about a third of its outlets (117 of 47) in
2014, we ex
xpect these sttores to contrribute to
OSIM’s botttom line stroongly from 2H
H15, post theeir
gestation pe
eriod.
2) TWG Tea co
ompleted thee constructio
on of 2 centra
al
kitchens in Shanghai an
nd Taiwan in 2014. We th
hink
these storess will benefit from scale economies
e
fro
om
2016.
Tea
a drinking
g is growin
ng in popu
ularity
Tea
a is now the second-most
s
t drunk beverrage in the
worrld, after watter, accordingg to the Food
d and
Agrriculture Organisation of the United Nations
N
(FAO
O).
Thee FAO notes that
t
it takes more than 4m
4 tonnes of tea
to satisfy
s
annua
al consumer d
demand, a nu
umber that
incrreases every year.
43
4
40
26
3
30
2
20
Management sa
aid that, overrall, the tea business
b
was
pro
ofitable in 1H15, propped up by South
h Asia. We
exp
pect improved
d profitabilitty from TWG
G Tea as: 1) a
thirrd of its store
es are movingg into the po
ost-gestation
period, and 2) scale econom
mies are improving.
10
16
10
0
2011
2
2012
2013
2014
2015E
2016E
20117E
Sourrce: Company, Daiw
wa forecasts
2) The expanssion of OSIM
M into high-p
profile
departmen
nt stores, such
h as Dubai Mall
M in United
d
Arab Emiraates, should lift its reputa
ation and braand
image. Thu
us, we expectt higher corp
porate sales aas
more hotells and airlinees carry TWG
G Tea produccts.
In Singapo
ore, TWG Tea
a has a presence in ~85%
% of
premium h
hotel rooms.
 TWG
T
Tea: mark
ket presence by
y geography
Onee of the reaso
ons underlyin
ng the popullarity of tea in
receent years is the heighteneed awarenesss of its health
h
ben
nefits, which supposedly include redu
ucing heart
atta
acks and certtain cancer riisks. Apart frrom its healtth
ben
nefits, tea’s prominence in
n fashion and
d art is
grow
wing.
Giv
ven rising afflluence global
ally, people arre more
seleective in term
ms of the tea tthey drink an
nd are lookin
ng
bey
yond the simp
ple consumpption of tea to
o tea
cereemonies and
d sampling sppeciality teass. Premium
sou
urces of tea arre one aspectt, but the ble
end of tea and
d
flav
vours infused
d, offering a u
unique taste,, is what
drin
nkers crave, in our view.
Acccording to Niielsen Markeet Track 20111 and Tea &
Cofffee Trade Journal (TCTJJ), specialty/p
premium tea
a
acco
ounts for nea
arly 60% of tthe tea market. This is the
resu
ult of an incrrease in the n
number of discerning
con
nsumers who are more ed
ducated abou
ut the qualityy of
variious teas.
We think this trrend bodes w
well for TWG Tea’s offerin
ng.
Apa
art from retailing premiu
um tea, TWG Tea’s other
diffferentiator is its focus on the custome
er experiencee.
Sourrce: Company
- 12 -
OSIM SP
10 August 2015
Acquisition of tea companies
 Specialty tea: 60% of tea’s market share
Others
40%
Specialty tea
60%
The rising demand for tea has resulted in big
businesses acquiring small, high-profile companies.
Coca Cola bought 95% of Honest Tea between 2008
and 2011. Sara Lee acquired Tea Forte in January 2012.
A month later, Jamba Juice purchased Talbott Teas.
More recently, AccelPath took up a 70% interest in
Village Tea in November 2014. We think this is a sign
of confidence in the brewing tea segment.
 Recent M&A activity of tea companies
Source: TCTJ, Nielsen Market Track 2011
China overtook India as the largest tea producer in
2006, and the gap has been expanding every year since
then. According to TCTJ, China produced around 40%
of the world’s tea, approximately 1.9m metric tonnes,
in 2012. It exports less than 20% of this amount. This
implies an annual consumption per head of about 1.1kg
of tea.
We think this supports TWG Tea’s expansion efforts
with 9 of its upcoming 11 stores slated to open in 2H15
located in North Asia.
Purchaser
The Coca-Cola Company
The Coca-Cola Company
Sara Lee Corp.
Jamba Juice Co.
AccelPath, Inc.
Target
Honest Tea, Inc (40% stake)
Honest Tea, Inc (60% stake)
Tea Forte
Talbott Teas
Village Tea Company Distribution, Inc.
Year
Feb-08
Mar-11
Jan-12
Feb-12
Nov-14
Source: Various news sources
We also note the emergence of tea companies in
Singapore. Pryce started an online presence in 2012.
Chaiholics, a retailer of specialty tea with shops similar
to TWG Tea (luxurious feel), started its business in
2013. Currently, Chaiholic has 4 outlets in Singapore.
We note that it closed 2 outlets – AXA Tower and Asia
Square recently. We think this exemplifies the intensity
of competition in Singapore’s specialty tea market.
Brand perception of the utmost
importance in China
We think the market’s perception of a brand will
remain important in China’s tea market. According to
Food Navigator Asia and Euromonitor, Nestlé, an
international food and beverage company, holds 50%
of the ready-to-drink tea market share in China. This is
substantially higher than Nestlé’s global market share
of 3%. The heightened status of Nestlé’s brand in China
has offered it the majority market share it enjoys in
China.
In terms of the marketing and positioning of its
products, we think OSIM’s years of experience with its
OSIM and TWG Tea brands outside of China are
relevant. In Singapore, TWG Tea eschews selling its
products through supermarkets; unlike other tea
brands like Dilmah Tea and Gryphon Tea Company,
whose goods retail in supermarkets such as Cold
Storage, NTUC Finest and Four Seasons Gourmet. This
enables TWG Tea to create an air of exclusivity,
underlying its premium status.
- 13 -
OSIM SP
10 August 2015
Consumer feedback: what goes
into buying a massage chair?
For the elderly, the hassle of travelling and lack of
past experience are the usual reasons preventing
them from signing up with a spa. Purchasing a
massage chair enables them to enjoy the benefits of
it in the comfort of their homes.
We recently carried out on-the-ground checks of
OSIM’s outlets in Singapore and its peers’ Ogawa and
OTO. Anecdotally, we interviewed several users for
their feedback on OSIM’s massage chairs and nonusers, to understand the key reasons preventing them
from owning one.
Key considerations for massage-chair purchasers
include: 1) past experience, 2) intended user, 3) price
point, and 4) brand perception. We think OSIM has
addressed every one of the criteria.
China’s population displays 2 peaks, at ages 20-24
and 40-44, which we think fits into OSIM’s target
market of upcoming professionals.
 China’s population by age (m)
140
120
100
80
1) Past experience: Customers tend to buy products
they are familiar with and where they have had a
positive user experience. OSIM engages in
customer feedback and incorporates features
sought after by its users.
We think such changes, while seemingly a
backward shift in innovation, will resonate well in
building a long-term positive user experience with
its customers.
40
20
0
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90-94
95-99
100+
For example, Ogawa’s latest model possesses leg
sensors to calibrate the length according to the
user, while OSIM discontinued this feature about 6
years ago. An OSIM store attendant told us that
OSIM had introduced this feature in 2004, but was
met with unfavourable user feedback. This led
them to replace the sensors with manual leg-length
adjustments instead.
60
Total 2010 China population (m)
Source: Undata’s 2010 data, Daiwa
3) Price point: Young adults and first-time buyers
tend to be more price-sensitive, especially for
discretionary goods like health and lifestyle
products. We think this emphasises the
significance of OSIM’s strategy in offering products
across multiple price points, from SGD38 for a
handheld massager to SGD7,488 for its premium
massage chairs.
The relatively lower outlay for some of its products
enables OSIM to capture and build a relationship
with young adults and first-time buyers. As their
spending power and familiarity with the brand and
product improves, backed by a positive user
experience, their willingness to upgrade to a larger
ticket item increases. This fits in with OSIM’s plan
to cultivate its users from a young age.
Additionally, OSIM calls its customers after their
purchase. This allows OSIM to gain feedback on
their product and fosters a relationship with their
customers.
These steps will lead to repeat purchases, in our
view. Management said that about 30-40% of its
premium massage chairs were sold to existing
customers.
Management said that in order to capture firsttime purchasers, it cannot afford to raise its prices
too steeply. The uDiva Classic, the sequel to the
uDiva is priced at SGD1,999. This is 23% cheaper
than the previous uDiva model’s SGD2,588. This is
also a reversal on uDiva’s pricing, which is a 37%
increase vs. its predecessor, the uAngel. We think
this will be viewed favourable by consumers.
2) Intended users: We have identified 2 key user
profiles: 1) busy professionals, and 2) the elderly.
White-collar professionals often have little free
time, particularly on weekdays. Some of the
respondents we spoke to said they had signed up
for spa/massage packages previously, but did not
have the time to use them. Having a massage chair
at home allows them the luxury of a massage when
it is convenient to them.
- 14 -
OSIM SP
10 August 2015
2011-13. We think these associations will bolster
consumers’ perception of OSIM as a healthylifestyle company.
 OSIM: current product portfolio
Product
uMagic
uInfinity
uInfinity Luxe
uChill
uDiva
uBio
uPhoria Warm
uSqueez Air
uCozy 3D
uCaress 3D
uHip
uPen
uPamper
uGem
uDurian
uVision
uGalaxy
uMask
uSnooz Massager Wrap
uSnooz Neck Pillow
uNek
uMoments
uNap Cuddle Blanket
uGoGo
uPixie Laptop Massager
uShape
uTrek
uShape Music
uCorset
uCheck 200
uVenus
uAlpine
uPure 2
Product type
Massage Chair
Massage Chair
Massage Chair
Massage Office Chair
Massage Sofa
Leg Massager
Leg Massager
Leg Massager
Upper Body Massager
Upper Body Massager
Lower Body Massager
Handheld Massager
Handheld Massager
Handheld Massager
Handheld Massager
Eye Massager
Eye Massager
Eye Massager
Neck Pillow
Neck Pillow
Neck Pillow
Sleep Well
Sleep Well
Pulse Massager
Pulse Massager
Innovative Fitness
Innovative Fitness
Innovative Fitness
Slim Belt
Blood Pressure Monitor
Air Purifier
Air Purifier
Water Purifier
Price (SGD)
5,288
6,988
7,488
1,499
2,588
788
698
428
138
328
328
45
148
38
138
68
258
38
68
48
218
135
68
388
199
699
598
899
349
158
798
598
128
We also spoke to non-users to understand their
reservations about owning a massage chair.
Key gripes: 1) Lacks perceived benefits, 2) pricing, and
3) size.
1) Lacks perceived benefits: For people with no prior
experience of a massage chair are unable to relate
to the benefits such chairs offer. We think OSIM’s
marketing efforts will help to educate consumers,
but there is scope to raise awareness.
2) Pricing: As some customers lack experience of
massage chairs, they are unwilling to spend a lot on
such a device. OSIM addresses this stickler by
offering products across different price points,
including relatively low-priced offerings such as leg
massagers and hip massager. This approach allows
customers to buy an item that suits their budgets at
the time; for example, a young couple with
relatively modest purchasing power may opt for the
uHip, costing SGD328.
This was one factor behind the introduction of the
uAngel, in our view. The price point for the uAngel
(SGD1,888) was 65% cheaper than for the uDivine.
This caters to a different customer segment
altogether. Comparatively, Ogawa’s newest basic
model retails for SGD5,299 before discount, twice
the price of OSIM’s uDiva. However, we note that
uDiva offers fewer features than does the Ogawa
chair.
Source: Company
4) Branding: People recognise OSIM due to its
advertising and promotional spending.
It frequently uses celebrities to endorse its
products. We note that OSIM opted for Lee Min Ho
to front the launch of the uDiva in April 2014. Mr
Lee appeals to the younger generation and shot to
fame through the Korean drama series he took part
in.
According to management, a 2014 research study
conducted by OSIM and a brand consultant found
that OSIM’s marketing strategy should take the
online route. This has encouraged OSIM to focus
its advertising efforts on social media platforms.
And in recent years, OSIM has begun utilising
online content marketing with the help of celebrity
bloggers.
As the uDiva is an entry-level product, it is
designed to look similar to an actual chair, so that
it can fit in with the rest of the furniture. Again,
this is in an effort to encourage consumers to start
with a smaller ticket item and build familiarity with
massage chairs and the OSIM brand.
3) Size: Public housing units are not big, and they are
shrinking. New houses in Singapore are getting
smaller. The typical size of a 4-5-room flat in the
1990s was 100-120 sq m vs. 90-110 sq m in the
2000s.
In line with its healthy lifestyle promotions, OSIM
tied up with the Sundown Marathon 2015, which
attracted 26,000 runners. The event started in
2008 with 6,000 participants. Previously, OSIM
sponsored the OSIM International Triathlon from
2001-11, the OSIM Singapore Golf Masters from
2005-08 and the BMF World Super Series from
- 15 -
OSIM SP
10 August 2015
We note that OSIM’s gross margin has been rising
since 2010. The shift in supplier, from a third party to
its own production joint venture, enabled this increase.
We expect this trend to continue as its scale expands.
Conversely, its peers have encountered declining gross
margins since FY11.
 Singapore: houses are getting smaller
Period
1980s
1990s
2000s
Flat type
(a) Floor area
3-room
4-room
5-room
Executive
3-room
4-room
5-room
Executive
3-room
4-room
5-room
Executive
69 sq m
105 sq m
123 sq m
145 sq m
n/a
100 sq m
120 sq m
140 sq m
65 sq m
90 sq m
110 sq m
n/a
(b) Average
household size
4.6
3.9
3.4
Living space per
person = (a) / (b)
15 sq m
23 sq m
27 sq m
32 sq m
n/a
26 sq m
31 sq m
36 sq m
19 sq m
26 sq m
32 sq m
n/a
 OSIM: gross margin vs. that of its peers
72%
66%
64%
During our walkabout, OSIM’s chairs were visibly
more compact than Ogawa’s. We think this is a
positive factor for OSIM, as consumers will tend to
opt for space-friendly equipment that takes up less
room in their homes.
OTO Elvi EV-01
102 x 62 x 89
OSIM uMagic
108 x 73 x 114
176 x 73 x 79.5
OTO Chiro CR-01
136 x 87 x 129
200 x 87 x 96
70.4%
65.5%
65.2%
68.9%
66.5%
65.3%
67.9%
65.9%
64.1%
2010
64.9%
2011
Osim
2012
Ogawa
2013
OTO
2014
Source: Companies, Daiwa
The difference in profitability is more apparent at the
EBITDA level. OSIM’s 2014 EBITDA margin was 22%,
far above Ogawa’s 9.9% (FY13) and OTO’s 4.3% (FY14).
Ogawa Smart DeLight Plus
136 x 87 x 129
182 x 87 x 96
 OSIM: EBITDA margin vs. that of its massage-chair peers
35%
30%
OSIM uInfinity
OTO Cyber Wave Plus
111.5 x 71 x 120.5
153 x 90 x 130
184 x 71 x 95.5
210 x 90 x 120
Ogawa Smart Sense
152 x 84 x 112
180 x 84 x 95
29%
22%
25%
20%
10%
Industry competitiveness
2%
OTO
5
20
27
0
52
4%
3%
0%
 OSIM stores vs. competitors in its key markets
10%
8%
-3%
(5%)
It is common to find an Ogawa and OTO store within
walking distance of an OSIM outlet. OSIM has the most
stores in its 5 key markets, at 2.5 times the combined
number of outlets for Ogawa and OTO.
Ogawa
14
64
23
0
110
9%
15%
22%
22%
21%
20%
15%
5%
OSIM
30
54
269
60
413
70.3%
60%
Note: Measurements in centimetres (length x width x height)
Country
Singapore
Malaysia
China/Hong Kong
Taiwan
Total
70.0%
62%
 OSIM massage chairs vs. those of its peers in Asia
OSIM uDiva
90 x 70 x 85
162 x 70 x 95
70.0%
68%
Source: Housing Development Board, The Straits Times
Massage sofa
Specifications
Upright position
Reclined position
Entry-level range
Specifications
Upright position
Reclined position
Premium range
Specifications
Upright position
Reclined position
70.4%
70%
2010
2011
Osim
2012
Ogawa
2013
2014
OTO
We think this highlights OSIM’s strength in terms of
operating efficiency for both staff and rental aspects.
The latest 3-year averages for OSIM’s staff/rent costs
were 8.5%/17.1%, below Ogawa’s 13.8%/21.5% and
OTO’s 22.7%/18.6%, respectively.
Source: Companies’ website, Daiwa, As at 3 August 2015
OSIM was ahead of its peers in terms of gross margin,
at 70.4% for 2014 (5-year average: 69%). Ogawa’s 4year average (FY10-13) was 65.8%, while OTO’s 5-year
average as at end-FY14 was 67.4%.
- 16 -
OSIM SP
10 August 2015
 OSIM: % of revenue allocated to rental and staff costs vs. its
massage-chair peers
25%
22.7%
21.5%
20%
13.8%
15%
10%
18.6%
17.1%
8.5%
5%
0%
Rental
Staff
Osim
Ogawa
OTO
Source: Companies
Note: 2012-14 average for OSIM and OTO; FY11-13 average for Ogawa
Based on our on-the-ground checks, we understand
that Ogawa and OTO introduce discounts on their
products soon after their release. But OSIM does not
offer discounts until the tail-end of a product’s life
cycle. This strategy is similar to those of luxury brands
like LVMH, which goes out of its way to maintain its
premium status.
We think this move will allow OSIM to sustain higher
gross and operating margins than its peers. The flip
side is that OSIM may lose market share to its peers
due to their more affordable prices, which would
appeal to price-sensitive customers.
Peers cashed out
In 2013, Ogawa World Bhd was sold to Xiamen
Comfort Science & Technology Group Co Ltd. (002614
CN) for MYR126.2m, implying an exit PER multiple of
8.8x using its FY13 net profit of MYR14.4m.
Separately, in 2014, OTO’s major shareholders
disposed of 179.1m shares (equivalent to a 56%
holding) for HKD374.4m. Based on the renamed
Tempus Holdings’ (6880 HK, Not rated)FY14 net profit
of HKD8.7m, the disposal price implies an exit multiple
of 76.7x PER.
- 17 -
OSIM SP
10 August 2015
Financial position
do not see any issues with the latter, and thus we
believe the true purpose was the former two.
Current ratio
We note that in January 2012, OSIM acquired the
majority of a controlling stake in GNC Taiwan for
SGD6.6m. In December 2012, OSIM acquired a 30%
stake in Suzhou Daitec Exercising Machine Co., Ltd for
USD1.1m.
OSIM’s current ratio has been above 1x since 2009. As
at 30 June 2015, the ratio was 4x. We also note that
73.8% of its current assets comprise cash and
equivalents. This implies that OSIM is in a good
position to take advantage of any expansion or
acquisition opportunities that may arise.
 OSIM: Current ratio (x)
5.0
3.7
4.0
3.0
2.0
2.3
1.4
1.3
2009
2010
3.9
4.2
4.6
For both bonds, the conversion price had a premium of
25% over the prior closing price. The bond issued in
2011 had an interest rate of 2.75%, while the bond
issued in 2014 does not bear interest. Instead, its yield
to maturity is at the rate of 2% per annum. We view
these rates favourably relative to Singapore’s 10-year
government bond yield of about 2.7%.
2.3
Given OSIM’s strong cash position, and that the bond
issuance in 2014 is the only significant debt on its
balance sheet, we do not see the company having any
problem paying down the full loan amount.
1.4
1.0
0.0
2011
2012
2013
2014
Current ratio
2015E
2016E
2017E
Net cash since 2009
We are comfortable with OSIM’s cash position, which
has been a growing net cash position since 2009. As at
30 June 2015, its cash and cash equivalents stood at
SGD404.5m, or 2.4x its total debt of SGD170.5m.
(SGDm)
700
574
600
500
428
446
503
400
267
194
200
100
73
63
35
15
133
2009
2010
2011
202
185
190
194
199
2012
2013
2014
Total cash
Total debt
2015E
2016E
2017E
142
On 16 October 2013, OSIM increased its stake in TWG
Tea from 45% to 53.7%. This led to a consolidation of
goodwill and intangibles on OSIM’s balance sheet.
Goodwill and intangibles grew from SGD19.8m at end2012 to SGD189.9m at end-FY13, as a result. This will
be amortised over its lifespan, which we estimate to be
20 years.
Positive FCF model
 OSIM: total cash vs. total debt
300
Goodwill and intangibles
155
0
OSIM has generated positive FCF (CFO – Capex) for
the past 26 quarters (since 1Q09), and we expect the
trend to continue. Its FCF yield (FCF/Enterprise value)
improved from 5.4% to 9.9% between 2009 and 2014.
Despite its subdued 3Q14 and 1H15 financial results,
OSIM still produced positive FCF in those periods,
enabling it to maintain its dividend payments and build
up its cash hoard.
Bond issuance in 2011 and 2014
Despite OSIM’s net cash position, it issued 2
convertible bonds for SGD120m in 2011 and SGD170m
in 2014. Both bonds were placed with institutional and
accredited investors.
The purpose was to fund its expansion plans, strategic
acquisitions and general working capital. However, we
- 18 -
OSIM SP
10 August 2015
to SGD 6 cents (including a SGD 2 cents special
dividend) in 2012.
 OSIM: FCF and FCF yield
(SGDm)
109
120
100
80
60
82
87
90
81
14%
96
84
10%
10%
7%
7%
7%
9%
8%
OSIM then maintained its DPS at SGD 6 cents for
2013/14. We expect OSIM to maintain its DPS
moving forward, but do not expect an increase. In
our view, OSIM has sufficient cash to support the
dividend payments.
12%
12%
59
40
20
93
8%
8%
6%
4%
5%
2%
0
 OSIM: dividend per share and payout ratio
0%
2009
2010
2011
2012
2013
2014
Free cash flow
(SGD cents)
7
2015E 2016E 2017E
FCF/EV (RHS)
51%
43%
25%
22%
21%
18%
13%
10%
20%
16%
21%
20%
18%
15%
4
27%
27%
30%
20%
2
1
19%
17%
17%
17%
20%
19%
19%
18%
2010
2011
LVMH
2012
2013
Salvatore Ferragamo
60%
40%
29%
3
1
2
3
6
6
6
2009
2010
2011
2012
2013
2014
6
6
6
0
10%
0%
2015E 2016E 2017E
Dividend payout ratio (RHS)
2) Share buyback: Since 8 October 2014, OSIM has
spent SGD40.7m to buy back 22.7m of its shares at
an average price of SGD1.79/share (high: SGD2.39,
low: SGD1.66). This represents about 2.9% of the
outstanding ordinary shares, ie, before the first
purchase on 8 October 2014. We expect share
buybacks to continue if the share price remains
attractive.
11%
Osim
42%
50%
Dividend per share (cents)
 OSIM’s EBIT margin is comparable to international luxury
players
20%
46%
5
One factor driving OSIM’s positive FCF generation is
its operating margin, which rivals those of luxury
players such as LVMH Moet Hennessy Louis Vuitton
(MC FP, Not rated) and Burberry Group (BRBY LN,
Not rated). We attribute OSIM’s high operating margin
to consumers’ perception of OSIM as a high-end brand.
20%
53%
6
21%
45%
2014
Burberry
War chest ready; little need for debt
OSIM saw its cash and equivalents increase from
SGD63.2m as of 31 December 2009 to SGD404.5m as
of 30 June 2015. We expect this upward trend to
continue for 2015-17.
Apart from the 2 bond issuances in 2011 (SGD120m)
and 2014 (SGD170m) for expansion purposes that we
mentioned earlier, OSIM has no other significant debt.
We do not foresee a change in this position.
What to do with all that money?
We think OSIM has 3 options: 1) dividends, 2) share
buyback, and 3) acquisitions.
1) Dividends: OSIM has distributed dividends
consistently in the past 5 years. It increased its
dividend per share (DPS) from SGD 1 cent in 2009
- 19 -
OSIM SP
10 August 2015
 OSIM: share buybacks
Date
8-Oct-14
10-Oct-14
4-Nov-14
5-Nov-14
10-Nov-14
11-Nov-14
12-Nov-14
17-Nov-14
21-Nov-14
8-Dec-14
18-Dec-14
19-Dec-14
29-Dec-14
6-Apr-15
7-Apr-15
14-Apr-15
16-Apr-15
17-Apr-15
20-Apr-15
7-May-15
8-May-15
11-May-15
12-May-15
13-May-15
14-May-15
Total
Average
Quantity
650,000
100,000
226,000
300,000
1,210,000
1,265,000
200,000
5,000
278,000
400,000
101,000
11,000
1,488,000
1,276,100
700,900
27,400
447,200
1,208,400
1,506,100
620,200
3,232,900
822,800
2,654,400
2,280,700
1,707,600
22,718,700
Price per share (SGD)
2.33
2.39
1.69
1.72
1.80
1.79
1.80
1.95
1.98
2.04
2.01
1.99
1.97
1.87
1.87
1.88
1.88
1.88
1.88
1.67
1.67
1.66
1.69
1.70
1.70
Consideration (SGD)
1,511,900
239,000
381,940
514,500
2,174,370
2,266,880
359,000
9,770
550,440
814,000
203,010
21,835
2,926,896
2,379,927
1,313,487
51,512
838,947
2,276,626
2,828,456
1,033,253
5,405,409
1,368,316
4,475,318
3,868,067
2,896,090
40,708,948
Assumptions
Number of outlets per brand
We expect OSIM’s store count to be little changed in
2015 before increasing by 5 outlets in 2016/17.
We expect a decline in the number of ONI Global
outlets (RichLife/GNC) in 2015, as management
continues to rationalise RichLife stores in China. We
expect an increase of 3 stores in 2016/17.
Management is targeting 15 new stores for TWG Tea in
2015, of which it has opened 4 so far. For 2016-17, we
assume it will open 10 stores pa.
 OSIM: total store count
1,000
800
600
16
26
251
270
253
603
586
2010
2011
43
58
68
78
245
238
220
223
226
577
590
561
560
565
570
2012
2013
2014
2015E
2016E
2017E
188
400
1.79
200
3) Acquisitions: OSIM acquired minority stakes in 2
companies in June 2015. It paid SGD2m for a 21%
stake in cosmetic start-up Laboratoires Du Palais
Royal Limited. And it increased its stake in Trek
2000 International (TREK SP, Not rated) to 8.8%
for SGD10.9m.
10
529
0
2009
OSIM
RichLife/GNC
TWG Tea
Revenue per outlet per brand
Although OSIM does not provide a breakdown of sales
by brand, we estimate OSIM contributes 65% of
revenue, TWG Tea (12%) and ONI Global (23%). We
expect TWG Tea to contribute 17.6% of revenue in
2017, supported by faster store-count growth.
We think this activity may be a sign of things to
come. OSIM’s last purchase of significance was
arguably that of TWG Tea in April 2011.
Dividends and share buyback most likely
In our opinion, the most likely scenarios are dividends
being sustained and share buybacks continuing in the
near term. For 1H15, OSIM declared a dividend of SGD
3 cents per share, similar to 1H14.
The last time OSIM paid a special dividend was in
2012. Our forecasts do not incorporate any special
dividends, as we believe OSIM will be prudent and hold
onto cash for share buybacks or acquisition
opportunities.
We forecast a 4% CAGR in revenue per store for 201517, driven by mainly by OSIM and ONI Global. We
expect lower revenue per store relative to 2014 for
TWG Tea during this period, as its new stores go
through the gestation phase.
As it stands, we think it is unlikely that OSIM will make
a significant purchase of another brand, given it is still
ramping up TWG Tea’s outlets and won’t want to overdiversify. Also, we think OSIM is still mindful of its
failed acquisition of Brookestone in 2005, which led to
a writedown in 2008. Thus, we think OSIM will be
cautious in its future pursuits.
- 20 -
OSIM SP
10 August 2015
 OSIM: revenue per store (in SGD ‘000)
 OSIM: quarterly operating-margin trend
1,000
900
800
700
665
648
644
703
759
812
816
852
25%
888
20%
21.4%
19.3%
15%
600
20.8%
18.9%
18.8%
500
14.2%
10%
400
17.7%
12.0%
300
5%
200
100
0%
0
2009
2010
2011
2012
2013
2014
2015E
2016E
3Q13
2017E
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
Source: Company
Cost structure
We forecast the operating margin to narrow by 2pp
YoY to 16.8% in 2015, as we anticipate more legal and
start-up expenses in 2H15. Thereafter, we look for the
EBIT margin to rise by 1.1/0.6 pp in 2016/17 to
17.9%/18.5% in the absence of legal costs and assuming
improved operational efficiency for TWG Tea.
The cost of goods sold and employee benefits are
OSIM’s two biggest cost components. As a percentage
of revenue, COGS has been falling (2009: 37.2%, 2014:
29.6%) while the employee benefits component has
been rising (2009: 16.5%, 2014: 17.7%).
 OSIM: operating margin forecasts
We expect these trends to continue as OSIM further
enhances its production efficiency, while staff costs
face pressure from rising wages and a bigger headcount
due to store expansion. However, as 30-40% of the
sales staff’s salaries are variable, we think OSIM will
face a smaller staff cost increase during the initial
phase of a store opening.
25%
20.0%
20%
15%
5%
100%
18.1%
11.0%
21.7%
22.0%
19.2%
19.6%
18.8%
20.2%
16.8%
20.9%
21.5%
17.9%
18.5%
2016E
2017E
13.3%
10%
 OSIM: cost structure
50%
15.5%
21.0%
8.2%
0%
31%
31%
30%
31%
30%
32%
17%
17%
18%
19%
18%
20%
20%
20%
20%
38%
37%
34%
34%
32%
33%
32%
33%
33%
2009
2010
2011
2012
COGS
Depreciation and amortisation
Marketing
Others
2013
2014 2015E 2016E
Employee benefits
Interest expense
Taxes
35%
2009
31%
32%
2010
2011
2012
2013
EBITDA margin
2014 2015E
EBIT margin
0%
2017E
Capital expenditure
Management does not anticipate significant changes in
the number of OSIM and GNC outlets in 2015. It said
that while it intends to open new OSIM and GNC
outlets, it will also look to shut down unprofitable ones.
Management expects to open 15 new TWG Tea outlets
in 2015. So far, it has opened 4.
Operating margin
OSIM has recorded weaker operating margins in the
past 4 quarters relative to the prior 4, due to: 1) lower
sales YoY in 1H15, 2) legal costs, and 3) start-up costs
related to the opening of TWG Tea outlets.
The capital expenditure for one new outlet varies
according to the brand: OSIM (SGD150k-250k), ONI
Global (SGD100k-150k) and TWG (SGD1m). The cost
of 1 central kitchen and warehouse exceeds SGD1m.
For full-year 2015, we forecast capex of SGD16m; in
1H15, the company spent SGD6.9m. For 2H15, we
expect higher capex spending HoH as OSIM ramps up
its TWG Tea store expansion plans.
We note that some of the SGD170m bond issue
proceeds from 2014 were slated for capex
requirements. In our view, the bond amount is more
- 21 -
OSIM SP
10 August 2015
than sufficient to cover OSIM’s capex needs for 201617, which we estimate at SGD34m in total.
 OSIM: working capital cycle
160
140
 OSIM: capital expenditure (in SGDm)
20
120
18.5
18
16.0
16.4
100
17.6
80
16
14
12.4
12.6
60
13.0
40
10.9
12
20
10
8
0
2009
6.2
2010
2011
Inventory days
Payable days
6
4
2012
2013
2014
2015E
2016E
2017E
Receivable days
Working capital cycle
2
0
2009
2010
2011
2012
2013
2014
2015E
2016E
Dividend policy
2017E
Working capital
OSIM’s working capital cycle (WCC) ranged from 52
days to 80.5 days between 2009 and 2014. We expect it
to increase to 102.5 days in 2015 due to 2 factors: 1)
increased inventory, and 2) shorter payable days.
Thereafter, we expect a fall in the WCC to 97.5/94.5
days in 2016/17.
OSIM does not have a fixed dividend policy, but it has
paid dividends for the past 6 financial years. The last
time it raised dividends per share was in 2012. In 2014,
OSIM paid SGD 6 cents per share.
We do not expect OSIM to raise its dividend per share
in the near term. Rather, we expect it to maintain the
amount over 2015-17, as we believe it has sufficient
cash to do so.
Increased inventory: We expect OSIM to take on more
inventory in view of uMagic’s launch in 2Q15 and the
forthcoming release of uDiva Classic in 2H15. Also,
TWG Tea will require more inventory to support its 11
new stores slated to open in 2H15. As such, we forecast
an increase in inventory days from 127.7 days in 2014
to 150 days in 2015, before a gradual reduction in
2016/17 as OSIM reduces inventory following the
initial phase after the launch of its new massage chairs.
Shorter payable days: Management said it had paid its
creditors ahead of schedule in 1H15. Thus, we have
reduced our payable days assumption from 79.8 days
in FY14 to 70 days in 2015-17E.
In our view, the longer WCC is not a cause for concern.
OSIM manages its inventories according to the demand
and product life cycle. Thus, we may see inventory days
come down in 2016-17 after the initial phase of uMagic
and uDiva Classic is over, which would lower the WCC
accordingly.
- 22 -
OSIM SP
10 August 2015
Valuation
Our 12-month target price of SGD1.88 is based on 14.5x
PER, in line with the stock’s past-5-year mean, applied
to our 2016 EPS forecast. The potential upside to our
target price stands at 10.3%. Our 2015/16 EPS forecasts
are 4.1%/8.1% above those of the Bloomberg
consensus.
 OSIM: 12-month forward PER
12M forward PER(x)
30
25
+2 stdev
20
+1 stdev
15
Mean
-1 stdev
10
-2 stdev
5
We assume OSIM’s capital structure will be fully
funded by equity. Currently, debt makes up 11.8% of
OSIM’s capital structure, derived mainly from a bond
due 2019. Given OSIM’s strong cash position, we do
not see a need for debt and have reduced it accordingly.
 OSIM: DCF valuation
WACC
Total value (SGD m)
Market capitalisation (SGD m)
Number of shares ('000)
Share price (SGD)
Total debt (SGD m)
Equity percentage
Debt percentage
Cost of equity
Risk free rate
Beta
Market risk premium
Cost of debt
Tax
Terminal growth rate
12.9%
1,423.3
1,250.5
779,152
1.605
172.8
100.0%
0.0%
12.9%
2.7%
1.2
8.5%
6.7%
17.0%
3.0%
Source: Daiwa forecasts
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
0
 OSIM: DCF valuation sensitivity analysis
Terminal growth
Discount rate
10.9%
11.9%
12.9%
13.9%
14.9%
Our target price is 13.5% above the Bloomberg
consensus figure (9 analysts). While the street is
mainly neutral on OSIM (Buy: 3, Hold: 5, Sell: 1), we
think it is underestimating the scope for stronger sales
in 2016, led by new product launches and TWG Tea
store expansion.
Source: Daiwa estimates
On our 2015 DPS estimate, the stock offers a 3.5%
dividend yield.
DCF valuation supports target price
Our target price is backed by our DCF valuation of
SGD1.95 per share.
In our DCF valuation, we assume a WACC of 12.9% and
terminal growth of 3%. Plus, we assume a 2.7% riskfree rate based on the current yield of Singapore’s 10year government bond. Our adjusted beta of 1.2 is
derived from Bloomberg. We assume a market risk
premium of 8.5% to account for uncertainty in the
economic outlook. And we use a 6.7% cost of debt,
based on 4pp premium to the risk-free rate. A tax rate
of 17% is used in line with Singapore’s prevailing tax
rate.
- 23 -
2.0%
2.5%
3.0%
3.5%
4.0%
2.29
2.06
1.88
1.72
1.59
2.36
2.11
1.91
1.75
1.62
2.43
2.17
1.95
1.78
1.64
2.52
2.23
2.00
1.82
1.67
2.62
2.30
2.05
1.85
1.70
OSIM SP
10 August 2015
 Valuations: peer comparison
Rating
BUY
Actual
16.5
PER (x)
FY15E
15.2
FY16E
13.2
NR
NR
118.8
61.9
90.3
n.a.
41.3
41.3
n.a.
31.0
31.0
95.2
24.4
28.0
9.1
39.2
2516.7
20.5
23.3
9.5
642.5
28.3
15.2
23.1
32.5
42.5
36.1
31.3
20.9
28.7
40.5
Company
OSIM INTL LTD
Ticker
OSIM SP EQUITY
Market cap
(USDm)
931
Current price
(l.c.)
1.71
Massage Chair Peers
TEMPUS HOLD
XIAMEN COMFORT-A
Average
6880 HK Equity
002614 CH Equity
214
1,439
4.65
15.33
1,893
4,555
3,768
2,672
7.55
NR
24.80
NR
19.74
NR
13.04 Outperform
Regional specialty retailers
ESPRIT HLDGS
330 HK Equity
SAMSONITE INTL
1910 HK Equity
L'OCCITANE INTL
973 HK Equity
LIFESTYLE INTL
1212 HK Equity
Average
Global luxury brands
PRADA
LVMH MOET HENNE
TIFFANY & CO
FERRAGAMO SPA
HERMES INTL
TITAN CO LTD
TOD'S SPA
BURBERRY GROUP
Average
1913 HK Equity
MC FP Equity
TIF US Equity
SFER IM Equity
RMS FP Equity
TTAN IN Equity
TOD IM Equity
BRBY LN Equity
12,510
96,635
12,060
5,596
40,580
4,616
3,139
11,078
37.80
173.45
93.37
30.23
350.50
334.00
93.50
1,608
NR
NR
Hold
NR
NR
NR
NR
NR
Simple average (excl. OSIM and Esprit)
Note: based on 7 August 2015 closing prices
- 24 -
PBR (x)
Actual
3.0
FY15E
2.8
ROE (%)
19.6%
Div Yield
FY15E (%)
3.5
5.5
4.0
4.7
n.a.
3.3
3.3
4.4%
6.6%
5.5%
n.a.
n.a.
n.a.
62.9
17.6
20.4
9.1
27.5
0.9
3.6
4.0
1.8
2.6
0.9
3.2
3.7
1.7
2.4
1.0%
15.1%
15.2%
21.0%
13.1%
0.4%
2.2%
1.8%
4.6%
2.3%
25.9
22.7
22.1
28.3
36.0
32.7
27.5
20.5
26.9
23.2
19.9
19.5
24.3
31.7
26.7
24.6
18.5
23.6
3.7
3.8
4.2
10.9
10.7
9.5
3.5
5.1
6.4
3.6
3.6
3.9
8.9
9.8
8.0
3.3
4.5
5.7
13.8%
22.6%
16.2%
37.7%
27.4%
29.1%
11.6%
26.2%
23.1%
2.2%
2.1%
1.7%
1.6%
1.0%
0.9%
2.3%
2.4%
1.8%
25.8
25.3
5.1
4.5
17.7%
1.9%
OSIM SP
10 August 2015
Rise in staff costs
Risks to our call
OSIM incurs higher staff costs when it opens new
outlets. It is also subject to wage adjustments to
account for inflation. While we have factored into our
forecasts an increase in wages, higher-than-expected
staff costs would pose a downside risk to our margin
and earnings forecasts.
Weak take-up rate of new products
Although OSIM’s key markets are in Asia, a global
economic meltdown would almost certainly affect
OSIM’s performance, in our view.
For example, during the global financial crisis, OSIM’s
sales in North Asia fell to SGD225.1m in 2008, from
SGD341.9m in 2006. South Asia was not spared either,
with revenue declining to SGD159.9m in 2008, from
SGD203.5m in 2006. Both geographical segments
recovered from 2009 onward.
TWG Tea litigation
We think that, among other factors, the ongoing antigraft campaign in China has led to subdued
discretionary spending. If consumer sentiment remains
weak, OSIM’s performance in North Asia may remain
sluggish, which could lead to its sales of new products
being weaker than we expect.
TWG Tea is involved in 2 legal cases: 1) a shareholders’
dispute in Singapore, and 2) a dispute over the use of
“1837” in its logo in Hong Kong. We understand that
the first case will have a court hearing in August 2015,
while legal proceedings on the latter case will resume in
January 2016. If these cases become protracted affairs,
OSIM’s legal expenses could weigh on its financial
performance going forward. Separately, an
unfavourable legal decision in the shareholders’
dispute could pose a risk to OSIM.
Poor execution in expansion
One of the key revenue drivers in our model for OSIM
is an increase in its store count. If OSIM is unable to
expand to the extent that we expect, perhaps due to an
inability to find suitable store locations, or has to close
down outlets unexpectedly, our revenue and earnings
forecasts would face downside risk.
Product imitation
In order to keep innovating and developing new
products to meet consumers’ changing tastes, OSIM
has about 40 in-house professionals and engineers
conducting research and development.
Developing a copy-cat product would require less time
and less investment in staff. Hence, a competitor could
bring to market a knock-off product at a lower price,
which would blunt OSIM’s competitive edge. We think
this poses a big risk to OSIM as price-sensitive
consumers may opt for a more affordable imitation
product.
One way OSIM can tackle this issue is to enhance
consumers’ perception of the brand, essentially
enticing customers to pay more for a superior product.
Another way would be to ensure it has a steady stream
of new product rollouts, particularly for smaller-ticket
items. One advantage of having short product life
cycles is that products have a smaller window of
exposure to possible imitations.
- 25 -
OSIM SP
10 August 2015
 OSIM: 2014 revenue by geography
Company background
Rest of World
6.7%
Listed in 2000, OSIM sells branded healthy lifestyle
products. The company was founded in 1980 by Mr
Ron Sim, its largest shareholder (65.6%). OSIM started
out selling household goods such as knife sharpeners,
and in 1982 it began marketing healthy lifestyle
products like handheld massagers.
North Asia
52.9%
South Asia
40.4%
Faced with a recession in 1985, Mr Sim resolved to
build up a brand and establish a regional presence.
OSIM ventured into Hong Kong in 1986, followed by
Taiwan, Malaysia, Indonesia, Thailand and China in
subsequent years.
Source: Company
The OSIM brand name was officially launched in 1996.
The company’s subsequent diversification into brands
like TWG Tea and GNC reflects Mr Sim’s goal of having
4 healthcare lines: Health, Hygiene, Fitness and
Nutrition.
OSIM has 2 sales channels: 1) retail, and 2)
distribution. In 2014, it derived 90.1% of its revenue
from retail and 9.9% from distribution.
 OSIM: 2014 revenue by sales channel
Distribution
9.9%
It now has 3 business segments: 1) OSIM, a retailer of
massage chairs and lifestyle products, 2) ONI Global
(GNC/RichLife), which sells nutraceutical products,
and 3) TWG Tea, a retailer and distributor of premium
tea.
OSIM does not disclose revenue broken down by
brand. However, we estimate OSIM contributed 65% of
2014 revenue, with the remainder coming from TWG
Tea (12%) and ONI Global (23%).
 OSIM: 2014 revenue by business
Retail
90.1%
Source: Company
As of 30 June 2015, OSIM has 827 outlets worldwide:
OSIM (560), ONI Global (220) and TWG Tea (47). Of
the 560 stores, about 45% are in China.
TWG Tea
12.0%
 OSIM: number of outlets as of 30 June 2015
RichLife/GNC
23.0%
TWG Tea
47
OSIM
65.0%
RichLife/GNC
220
Source: Daiwa estimates
Geographically, OSIM derived around 53% of its 2014
revenue from North Asia, 40% from South Asia, and
7% from the rest of the world.
OSIM
560
Source: Company
- 26 -
OSIM SP
10 August 2015
OSIM
OSIM is a retailer of massage chairs and lifestyle
products. Its products include massage chairs,
handheld massagers and air purifiers, and it has directowned and franchise stores. We estimate direct-owned
outlets to make up about 85% of total store count, with
franchisees accounting for the remainder.
 OSIM store front
Source: Company
According to Frost & Sullivan, OSIM held a leading
market share of 59.1% in Hong Kong for sales of
relaxation equipment by value in 2010. Its closest peers
were Ogawa and OTO.
Because OSIM strives for quality in its products, they
tend to be durable. Although management expects the
lifespan for its products to be 10 years, it said that some
customers use the products for longer than a decade.
New massage chair every 12 to 18 months
Massage chairs account for 60% of OSIM’s sales in this
segment. OSIM has 3 price levels for its massage
chairs: 1) SGD2,000, 2) SGD5,000, and 3) SGD7,000.
Typically OSIM releases 1 massage chair model in the
SGD2,000 and SGD5,000 bracket every 12 to 18
months, including model variants.
For the premium range (SGD7,000), management
notes that customers tend to be more loyal. Hence,
OSIM spaces out its high-end model launches
compared with the 12- to 18-month cycle for the lower
price points. It also launches about 4 to 5 smaller items
every year.
This steady flow of products ensures that OSIM’s stores
are refreshed consistently and customers are given new
choices. Management shared that the sweet spot for
massage chair trade-ins is between 3 and 5 years,
which we think bodes well for the company’s new
releases.
 OSIM: massage chairs launched over the years
Date launched
Apr-03
Apr-04
Mar-05
Mar-06
Aug-06
Jan-07
Dec-07
Feb-08
Jul-08
Massage chair
iSymphonic
iSymphonic AV
iDesire
iDesire ROBO
iMedic Pro
uPilot
uSpace
uYoyo
uMedic
Apr-09
Jul-09
Jan-10
Jun-10
Nov-10
2011
2012
Jan-13
Jul-13
uDream
uDesire
uSoffa Petit
uSoffa
uDivine
uDivine Sport
uDivine App
uAngel
uInfinity
Apr-14
Nov-14
uDiva
uInfinity Luxe
Apr-15
2H15
uMagic
uDiva Classic
Description
Massage chair that synchronises massage and music
Massage chair that synchronises with audio-visual signals
Full body massage chair
Voice-controlled full body massage chair
Mid-range full body massage chair
Designer massage chair with patented ROBO-Stic technology
Well-being chair
Massage and exercise chair
Multi-purpose full body massage chair with retractable foot
rest
Hybrid 3-system family massage chair
Convertible massage chair
Massage sofa
Massage sofa with customisable design
Human-3D massage chair
Massage chair clothed with sports car interior
Massage chair combined with mobile app technology
Massage sofa
Massage chair that lets the user download new massage
programmes
Massage sofa; sequel to uAngel
Massage chair that lets users download new massage
programmes
Massage chair with magic hands technology
Massage sofa, sequel to uDiva
Source: Company
Management said that it refrains from offering price
discounts, an approach that we believe helps to retain
OSIM’s premium standing in the market. However,
management noted it will reduce prices near the tailend of a product’s life cycle in order to clear unsold
inventory and pave the way for new products.
During the initial launch period, OSIM aims to attract
new customers. After 3 to 6 months, it tends to
relaunch the product and may shift its focus to tradeins.
OSIM contacts its existing customers to inform them
when it has a new product offering. Its interaction with
existing customers does not end there. Rather, it
reaches out to clients 30 days after they have
purchased a product, with the twin goals of: 1)
soliciting customers’ feedback, and 2) providing a
positive service experience.
- 27 -
Consum
ore
OSIM
M SP
10 August 2015
2
 uInfinity: OSIM’s premium ma
assage chair
 uH
Hip: hip massager
Sourcce: Company
Sourrce: Company
 uDiva: OSIM’s m
massage sofa
 uS
Squeez Air: low
wer leg massag
ger
Sourrce: Company
Sourcce: Company
Fra
anchisee model
m
As the
t franchiso
or, OSIM con
ntrols the typ
pe and qualitty
of promotion
p
an
nd marketingg undertaken
n by the
fran
nchisees. Fra
anchisees aree required to allocate at
leasst 4% of theirr sales to advvertising and
d promotion
actiivities each year.
y
OSIIM earns from
m franchiseees in 3 ways: 1) franchiseee
feess, 2) royaltiess, and 3) salee of productss.
- 28 -
Consum
ore
OSIM
M SP
10 August 2015
2
1) Franchise ffee: Franchisse fees start from
f
USD100
0k.
Dependingg on market conditions
c
an
nd the ease oor
difficulty o
of market pen
netration, OS
SIM may waiive
or suspend
d the franchisse fee.
 OS
SIM: supply chain
OSIM takes a cut of 3-5%
% of sales,
2) Royalties: O
depending on the size of
o the potential market th
he
franchisee will operate in. OSIM ma
ay impose a
graded scalle for royaltyy payments, which
w
helps
franchiseess to get a foothold in the market whilee
keeping staart-up costs in
i check.
M sells its products to the
3) Sale of products: OSIM
franchiseess at cost pluss a mark-up. Payment is
usually pree-paid or, at worst,
w
receiv
ved upon
delivery. Th
his approach
h helps to red
duce OSIM’s
collection rrisk, in our view.
v
anagement aaims to increa
ase the numb
ber of
Ma
fra
anchisees, tho
ough not at all
a costs. Rather, it seeks to
culltivate long-tterm relation
nships with reliable
r
enttrepreneurs.
A case
c
in point is OSIM’s reecently launcched franchisse in
Canada. The du
uo running th
he franchise operation
sta
arted the firstt OSIM francchise in New
w Zealand 8 yyears
ago
o before expaanding into Australia
A
2 years
y
ago.
Su
upply chaiin
OS
SIM has a han
nd in the enttire production process,
fro
om research aand developm
ment, concep
ptualisation,
dessign, testing,, production,, marketing and
a sales, to
aftter-sales and service supp
port.
Wee believe thiss approach en
nsures OSIM
M receives am
mple
feeedback on itss offerings an
nd helps it to identify pocckets
of untapped
u
deemand in thee market.
In order to ensure that it ob
btains produ
uction priorityy
forr its orders, O
OSIM took a 30% stake in
n DT-OSIM
Heealthcare App
pliances (Suzzhou) Co., Lttd (DTOSIM
Suzhou) in 199
95. The remaiining 70% is held by Daitto
Eleectric Machin
ne Industry Company
C
Lim
mited (DEM I), a
Jap
panese suppllier of OSIM
M’s products.
Wee understand
d that DTOSIIM Suzhou sources raw
ma
aterials from
m a few suppliiers in China
a, ensuring th
hat
it is
i not depend
dent on a sin
ngle suppler.
DE
EMI, founded
d in 1956, is based
b
in Osa
aka, Japan. Itt is
a lo
ong-term strrategic partner of OSIM. In Decemberr
2012, OSIM acquired a 30%
% stake in Su
uzhou Daitecc
Ex
xercising Macchine Co., Ltd for USD1.11m. Suzhou
Da
aitec is an R&
&D and manu
ufacturing arrm of DEMI.
Sourcce: Company Prospec
ctus (1999)
Prio
or to launching the uDiviine model in November
20110, OSIM ma
ainly procureed its massag
ge chairs from
m
Jap
pan. Since the
e uDivine hitt the market,, the majorityy of
OSIIM’s massage
e chairs are ssupplied thro
ough DTOSIM
M
Suzzhou.
TW
WG Tea
TW
WG Tea, also known
k
as Th
he Wellness Group,
G
offerss
oveer 1,000 singlle-estate finee harvest teass and exclusiive
blen
nds, as well as
a tea patisseeries and oth
her tea-infuseed
deliicacies. Its te
ea leaves aree sourced ma
ainly from
Chiina, India and Sri Lanka.
Fou
unded in 200
07, the compaany initially carried spa and
a
skin
n care products. It also soought to deve
elop a premium
tea brand in Sin
ngapore and tthe UK. How
wever, with th
he
success of TWG
G Tea in 2008
8, it decided to suspend all
a
other lines and focus on the luxury tea business.
b
- 29 -
OSIM SP
10 August 2015
 TWG Tea: ION Orchard outlet
In April 2011, OSIM bought a 35% stake in TWG Tea
Company Pte Ltd. The 2 formed a joint venture, TWG
Tea North Asia, to expand into China, Korea, Taiwan
and Hong Kong by replicating its Singapore business
model. OSIM has since increased its stake in TWG Tea
to 69.9%.
 TWG Tea: shareholding structure
OSIM
Owns 70%
Owns 60%
Effective ownership: 88%
TWG Tea Company Pte Ltd
Owns
40%
Source: Company
In Singapore, TWG Tea has a presence in around 85%
of luxury hotels and is strongly positioned at the
airport, with a store in each of the 3 terminals.
According to management, nearly all of the stores in
Singapore enjoy high footfall and are profitable.
TWG Tea North Asia
Source: Company
 TWG Tea: products
Distribution channels
TWG Tea has 3 distribution channels: retail outlets,
hotels and airlines. TWG Tea can either go direct or
through a franchisee.
1) Retail: TWG Tea sells its products to consumers via
its retail outlets. Some of TWG Tea’s retail
establishments double up as tea salons providing
F&B offerings. In such establishments, we estimate
the F&B component contributes 30% of revenue
and retail 70% of revenue in a stable state (2 to 3
years after opening).
Source: Company
Management noted that the tea salons tend to
generate more revenue compared with the retailonly outlets. However, in terms of profitability, the
retail-only stores come out on top.
TWG Tea stores are located in tourist-rich spots such
as premium hotels, airports and high-class department
stores (eg, The Shoppes at Marina Bay Sands). Clients
include Singapore Airlines and All Nippon Airways.
Outside of Singapore, TWG Tea is often franchised by a
luxury brand distributor. As of 24 July, it has 47 outlets
in 19 countries. Seventeen of the outlets are directlyowned and the rest are under franchisees.
TWG Tea franchisees must operate a tea salon, ie,
similar to the self-owned retail segment. TWG Tea
earns a franchise fee of USD250,000 and takes a 23% sales cut from franchisees. TWG Tea also
generates revenue by selling the products to the
franchisees. Over a 5-year contract, franchisees
must buy a minimum amount of tea from TWG
Tea, ensuring a steady flow of income for the
company.
TWG Tea products are sold in certain upmarket
retailers overseas, such as Dean & DeLuca in the
US.
2) Hotels/Airlines: TWG Tea has a sales team that
focuses on its corporate clients, which include
- 30 -
OSIM SP
10 August 2015
luxury hotels, fine dining establishments and
airlines. Sales to corporate clients make up about
10% of TWG Tea’s revenue.
Franchisees can approach corporate clients as well,
but they must first seek approval from TWG Tea to
ensure that products are sold to appropriate
clients.
TWG Tea places a strong emphasis on its choice of
partners and store location. Hence, franchise outlets
are positioned in high-end department stores, such as
in the IFC mall in Hong Kong, Dubai mall in UAE,
Pavilion Kuala Lumpur in Malaysia, and The
Emporium in Thailand.
Chaiholics is a specialty tea company that started out in
Singapore 2 years ago. Its concept is similar to TWG
Tea, with retail outlets selling brewed tea/coffee, premade food such as bento sets for lunch, and tea leaves
in loose or sachet forms. It specialises in the sale of
chai, or Indian spiced tea. We understand that the
company imports most of its tea from India and creates
unique blends in-house.
It has 4 outlets in Singapore located in commercial
areas such as MBFC Tower 3 and Chevron House, as
well as a tie up with 2 mid-market restaurants, The
Namly Club and The Tiong Bahru Club. The shops at
MBFC Tower and Chevron are similar to TWG Tea
outlets in offering a luxury atmosphere (spacious,
warm lighting, attractive fixtures and fittings).
 TWG Tea: Jiyūgaoka (Tokyo) outlet
 Chaiholics: Chevron House outlet
Source: Company
Source: Chaiholics
In our view, the positioning of the product in high-end
hotels and airports serves as a brand-building
platform, ie, through association with premium names.
Central kitchens
TWG Tea owns 5 central kitchens located in Shanghai,
Guangzhou, Hong Kong, Taiwan and Singapore.
According to management, a city needs a minimum of
4 stores before the company will consider opening a
central kitchen to support them.
A central kitchen can support up to 15 stores. Currently
there are 11 stores in Singapore using the central
kitchen there. The cost of setting up a central kitchen
equipped with a warehouse and corporate office
exceeds SGD1m, according to management.
Emergence of speciality tea in Singapore
TWG Tea is not the only player looking to carve out a
niche in Singapore’s luxury tea market.
Chaiholics used to have 2 other outlets in office
buildings AXA Tower and Asia Square Tower 2 but
closed them down in late 2014. One staff member we
spoke to said that footfall at Chevron House was
“great” while MBFC Tower 3 enjoyed “decent” traffic.
We think the closure of the 2 outlets by Chaiholics
underlines just how competitive the segment is, as well
as the importance of having stores in high-traffic
locations. Also, it highlights the need for companies to
have strong balance sheets in order to support the
business before it breaks even and become selfsustaining.
Legal issues concerning TWG Tea
TWG Tea is involved in 2 law suits currently. The first
case in Hong Kong regards the use of “1837” in its logo.
The second is a shareholders’ dispute in Singapore.
1) Hong Kong: The numbers “1837” feature
prominently in TWG Tea’s logo. 1837 was the year
in which free tea trading started in Singapore
- 31 -
OSIM SP
10 August 2015
OSIM first acquired a 29.9% stake in ONI Global
(formerly known as Global Active) in April 2003, and
increased its holding in subsequent years.
through the creation of the Chamber of Commerce,
but the legal case against TWG Tea alleges that the
logo implies that the company itself dates back to
1837. A court hearing is scheduled for January
2016.
 GNC outlet in Singapore
In our view, removing “1837” from its logo might
cause TWG Tea to lose some brand equity, but we
doubt that consumers’ perception of the products’
quality and luxury status would be greatly affected.
Hence, we do not believe the case poses a
significant threat to TWG Tea’s brand status or
sales.
2) Singapore: A former founder of TWG Tea, Mr
Manoj Murjani, has alleged that OSIM and other
TWG Tea directors conspired to dilute his stake in
TWG Tea. Mr Murjani is seeking to reverse a
corporate action undertaken in January 2014 that
raised OSIM’s stake in TWG Tea from 53.7% to
69.9%. A court hearing on the shareholders’
dispute is expected to be held in August 2015.
Source: Company
 RichLife outlet in China
Management expects the legal disputes to be resolved
by early 2016. It believes the company’s legal costs in
2015 will be similar to those for 2015, ie, low single
digits in millions of Singapore dollars.
ONI Global
OSIM owns 94.9% of ONI Global Pte. Ltd, a specialty
retailer of “nutraceutical” vitamin and energy products
sold under the GNC and RichLife brands.
Source: Company
ONI Global is the sole franchisee for the GNC brand in
Singapore, Malaysia, Taiwan and Australia. According
to ONI Global’s website, GNC is the world’s largest
chain of healthfood stores, and has been the largest
nutritional supplement manufacturer in the US since
the 1960s. GNC has more than 8,000 stores worldwide.
Through ONI Global, OSIM entered the nutrition
market in China in 2008 with the launch of RichLife
outlets after it had failed to obtain GNC franchise rights
for China. RichLife is China’s first specialty chain store
offering premium and fully imported nutritional
supplements. RichLife’s products are all manufactured
in the US.
ONI Global has received awards from GNC US,
including Best International Store of the Year and
Highest Sales per Square Foot Worldwide.
In recent years, OSIM has been closing its RichLife
stores due to the challenging operating environment in
China. Management noted that it is unable to bring
GNC products into the China market due to
government restrictions, and as 30 June 2015 only 2
RichLife outlets remained.
Minority stakes
OSIM acquired minority stakes in 2 companies in June
2015, and we believe it may make more acquisitions in
the future. OSIM’s last purchase of significance was
that of TWG Tea in April 2011.
Laboratoires Du Palais Royal Limited
On 26 June 2015, OSIM bought a 21% stake in
Laboratoires Du Palais Royal Limited (LDPRL) for
about USD2m. LDPRL is a cosmetic product start-up
that uses tea extract in its products. With the purchase,
LDPRL became an associate company of OSIM.
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OSIM SP
10 August 2015
Product innovation. Management aims to introduce
products that meet customers’ changing requirements
and fill in gaps in its price-point range. One example is
the introduction of uAngel, an entry-level massage
chair.
Trek 2000 International
On 24 June 2015, OSIM proposed to subscribe to 24m
new ordinary shares and 1m treasury shares in Trek
2000 International Ltd (TREK SP, Not Rated) for
SGD10.9m. The move will take OSIM’s stake in Trek to
8.8%.
Threats
Trek is an inventor of Internet of Things (IoT)
products, and its patents include ThumbDrive and
Flucard.
Counterfeit products. The launch of counterfeit
products would lessen OSIM’s advantage from using
proprietary technology and give price-sensitive
customers more affordable options.
The proposed purchase should strengthen ties between
the 2 companies as they work on the commercial
application of OSIM’s patents and technology for
products in the wellness and healthy lifestyle sector.
Product defects leading to recalls. Product recalls
could lead to a loss of sales and damage OSIM’s
reputation.
The net proceeds will be split evenly between R&D
(particularly for medical diagnostic technology) and
general working capital.
Competition. A revolutionary product from OSIM’s
competitors could shift demand away from OSIM.
Management
SWOT analysis
Mr Ron Sim – Founder, Chairman and CEO. Mr
Sim is the founder of OSIM. As of 15 July 2015, Mr Sim
holds a 65.6% stake in the company. Mr. Sim has won
multiple management awards and actively participates
in public service.
Strengths
Strong brand. According to a survey by Synovate
undertaken in 2008, OSIM is the leading healthy
lifestyle product brand in consumers’ minds across
Asia.
Mr Peter Lee Hwai Kiat – CFO. Mr Lee is a
certified public accountant who looks after OSIM’s
finance strategy and control, information systems,
human resources and investor relations. Mr Lee joined
OSIM in 2000 and has been a board member since
2006. Mr Lee is also the Chairman of the Edusave
Advisory Council (Ministry of Education) and an
Advisory member of the Republic Polytechnic CIE
(Centre for Innovation and Enterprise).
Scalable business. As TWG Tea opens more outlets,
the business can leverage the central kitchens, giving
scale to the segment.
Low-risk expansion via franchise. OSIM’s
expansion using the franchisee model is a low-risk
approach that provides a visible stream of recurring
income through franchise and royalty fees.
Weaknesses
Susceptible to weak consumer sentiment. Any
softness in the global outlook among consumers would
likely lead to a reduction in spending, particularly for
consumer discretionary items such as OSIM’s products.
Unable to raise prices significantly due to
elastic demand. As evidenced by its pricing u-turn
for the uDiva Classic line, OSIM may not be able to
raise prices too steeply without weighing on demand.
Opportunities
Mr Charlie Teo Chay Lee – Executive Director
and COO (HQ). Mr Teo has over 20 years of
leadership experience at OSIM, covering sales,
marketing and operations. He joined OSIM in 1989
and was appointed to the board in 2000. Mr Teo is a
council member of the Singapore Retailers Association.
Mr Richard Leow Lian Soon – Executive
Director and COO (China). Mr Leow has spent
most of his time outside of Singapore since joining
OSIM in 1987, and is based in Beijing, China. Mr Leow
was appointed to the board in 2000.
Deeper penetration in countries outside its
core markets. OSIM should be able to expand its
presence in countries beyond its 5 key markets.
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OSIM SP
10 August 2015
Shareholding structure
OSIM’s largest shareholder is Mr. Ron Sim, with a
65.6% interest. Capital Group Companies Inc. is the
second-largest shareholder, with a 5.1% stake.
 OSIM: shareholding structure
OSIM
Mr. Ron Sim
65.6%
Capital Group
Companies Inc
5.1%
Morgan Stanley
2.6%
Other public
26.7%
Source: Company, Bloomberg
- 34 -
OSIM SP
10 August 2015
Daiwa’s Asia Pacific Research Directory
HONG KONG
Takashi FUJIKURA
Regional Research Head
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(886) 2 8758 6249 christine.wang@daiwacm-cathay.com.tw
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(China)
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Custom Products Group
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PHILIPPINES
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Utilities and Energy
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(63) 2 737 3023
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Small/Mid Cap
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(91) 22 6622 1009
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ramakrishna.maruvada@sg.daiwacm.com
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(65) 6321 3086
Oil and Gas; Capital Goods
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Property and REITs
(65) 6329 2102
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Small/Mid Cap (Singapore)
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(65) 6321 3092
jame.osman@sg.daiwacm.com
Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer
(Singapore)
- 35 -
OSIM SP
10 August 2015
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OSIM SP
10 August 2015
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views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no
individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report.
"1": the security could outperform the local index by more than 15% over the next 12 months.
"2": the security is expected to outperform the local index by 5-15% over the next 12 months.
"3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months.
"4": the security is expected to underperform the local index by 5-15% over the next 12 months.
"5": the security could underperform the local index by more than 15% over the next 12 months.
Disclosure of investment ratings
Rating
Buy*
Hold**
Sell***
Percentage of total
60.4%
26.0%
13.6%
Source: Daiwa
Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 June 2015.
* comprised of Daiwa’s Buy and Outperform ratings.
** comprised of Daiwa’s Hold ratings.
*** comprised of Daiwa’s Underperform and Sell ratings.
Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law
(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the
following items.
• In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in
the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.
• In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.
• For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the
amount of the transaction will be in excess of the required collateral or margin requirements.
• There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,
real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.
• There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.
• Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.
*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of
each transaction etc.
- 38 -
OSIM SP
10 August 2015
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions
regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd.
Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108
Memberships:
Japan Securities Dealers Association, The Financial Futures Association of Japan
Japan Securities Investment Advisers Association
Type II Financial Instruments Firms Association
- 39 -

Initiation: the second coming

Transcription

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