3Q11 results below expectations. OSIM International Ltd (OSIM) reported i ts 3Q11 which fel l shor t of our belowconsensus estimates. Revenue grew 5.9% YoY but declined 10.8% QoQ to S$123.6m; while net profit rose 0.8% YoY but dipped 30.1% QoQ to S$13.1m. Excluding a one-off tax provision of S$2.8m, we estimate that OSIM's net profit still came in below our forecasts by ~10.4%. For 9M11, revenue and net profit growth of 9.3% and 56.9% met 71.0% and 69.6%
of our FY11 estimates, respectively.

Macroeconomic uncertainties could dampen consumer sentiment. Although OSIM derives the majority of its revenue from Asia (~94% of 9M11 revenue), we believe that the weak economic environment stemming largely from the Euro zone debt crisis and sluggish U.S. growth could still have weighed in on the discretionary spending patterns of consumers here, thus causing OSIM's sales growth to miss our projections. Moreover, China's economic growth has showed some signs
of easing (3Q11 YoY GDP growth of 9.1%, versus 9.5% in 2Q11 and 9.7% in 1Q11) while inflationary pressures have remained persistently high.

Focus on innovation and improving productivity. Nevertheless, we are positive on management's push to drive its product innovation which has led to a favourable product mix. The rolling-out of new innovative products would also enable OSIM to drive its brand equity further. OSIM also strives to raise its productivity per outlet and per man in a bid to increase profitability. It will continue the rationalisation of existing stores by closing outlets that have not performed to expectations.