The link is here: http://info.sgx.com/webcorannc.nsf/560dd4b031b97d27482571b20043d38c/
f4f46a9663f2574a482572740033e987?OpenDocument
(join the two together without space, it's too long to put together in this blog)
Basically, the profit guidance statement says that they expect their 2006 profit after tax to be lower than 2005 by a good 20 to 28% (Alarm bells should be ringing, change in fundamentals!) Finalised audited results will be out on 22nd Feb.
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Osim International Ltd: Earnings bombshell
Summary: Osim is guiding for 20-28% YoY decline for its FY06 net profit, pending the actual release on 22 February. As a recap, we were a lone voice for much of 2006, with regard to:
1) the stock market's excessively optimistic pricing in of minimal execution risks or smooth realisation of synergies for the integration of Brookstone Inc. as reflected in Osim's share prices,
2) Osim had only equity account Brookstone's 4Q05 results (the only profitable period of the year) in its FY05 performance, and as a result, YoY net profit growth in FY06 may be much slower than EBIT growth due to Brookstone's full year contribution (including the loss making first 3 quarters) in FY06, and
3) Osim is not yet an established brand in the USA, and the speed of consumers' receptiveness to relatively new health lifestyle products like massage chairs is still an unknown factor for Brookstone. We were, however, caught off guard like the rest of the market with the extent and duration of copycats' damage on Osim's organic health lifestyle product sales in the profitable North Asian markets, and its ineffective adex.
We have cut our net profit estimate by 43% to S$33.5m in FY06. Our previous estimate of S$1.42 was already the lowest in the market before yesterday's earnings bombshell, and we have slashed this further to S$0.785. Our rating on Osim has once again been cut from a HOLD to a SELL rating. (Chong Wee Lee)
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Quite a number of brokerage houses also downgraded OSIM. Except Merrill Lynch, maybe they own some OSIM themselves, haha. But really pay no more attention to these reports, what you should pay attention is the reaction that these reports generate. Not all things are created equal, similarly, not all brokerage houses reports generate the same reaction. Pay attention more to foreign reports, they generate more reaction, most of the time
DJ MARKET TALK: Osim Down 18.3%, S$1 Floor; Brokers Downgrade
0128 GMT [Dow Jones] Osim (O23.SG) down 18.3% at S$1.07 on moderate volume after saying FY06 after-tax profit will be 20-28% lower vs FY05's S$46.7 million earnings.
News has prompted string of downgrades; Credit Suisse cuts to Neutral from Outperform, CIMB cuts to Underperform from Neutral, OCBC cuts to Sell from Hold.
"With momentum stalled, Osim's shares are likely to be a drag in the near term," says Credit Suisse.
Merrill Lynch however keeps stock at Buy with S$1.34 target; "given the highly leveraged overseas acquisition of Brookstone, which is management's first foray into U.S. retail, we do consider Osim suitable only for investors with a higher risk appetite." Support tipped at S$1 (level not reached since July 2005).
FY06 results due Feb. 22
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Osim looks bad on both weekly and daily charts. Price fell below ema20, 50, 100 days and glups...even ema200 days, a very grim prospects indeed. The chart is based on yesterday's price action, and today there's a 18% drop in share price down to a intraday low (as of now) of 1.07, cutting down the 1.11 support line that I've drawn, which is also the ema200 moving support line. Next support line is at 0.875, and I'm quite convinced that it wouldn't touch that support.
Stochastics and MACD is all on downtrend, though it's very very near the bottom already. So, I would expect the selling to stop maybe after a few more days. Cut now if you can't stomach it, otherwise, I suspect you might have to hold this one for a longer term that you wanted.
What's more worrying isn't all this technicals, it's the shift in fundamentals. First of all, if you look at the profit guidance (more aptly called profit warning statement), they mentioned quite a no. of reasons why they didn't do well. I think the most impt reasons for all is that there really is a lot of competitors out there who compete on pricing. Add to the fact that US side is lukewarm to their marketing, you have quite no. of things to worry about.
So what will I do? I will definitely sell on strength, perhaps riding on the coming CNY rally and cut my losses there and then, live to fight another day. I'm quite certain there will be a rebound these few days after such a huge selldown, but it still doesn't change the fact that it's going on a downtrend. The big day is on 22nd Feb, where they already forecasted 20 to 28% less profit after tax, yoy. Much of the downside should already been factored in, so people should be looking for the higher or lower end of the forecast to base their investment decisions upon. Will you take the risk?
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