OSIM raises TWG Tea stake to 70%

Re-measurement gains expected from clinching controlling stake.

OSIM International Ltd (OSIM) has raised its shareholding in TWG Tea from 53.7% to 70%, which OCBC Investment Research sees mainly as a positive for OSIM due to earnings accretive forecast for TWG Tea.

Here's the full analysis from OCBC Investment Research:

OSIM International Ltd (OSIM) announced that it has raised its shareholding in TWG Tea from 53.7% to 70%.

This development arose due to OSIM’s undertaking of a rights issues by TWG Tea (OSIM took up all the rights).

Total proceeds of S$25m were raised and this would be used mainly for TWG Tea’s store expansion in 2014 and repayment of debt.

We are positive on this move as we expect it to be earnings accretive to OSIM. TWG Tea generated a net profit of S$5.6m in its recent FY13 results (FYE 31 Mar) and we are expecting its earnings traction to gain momentum going forward.

We maintain our BUY rating on OSIM but our fair value estimate of S$2.56 is under review pending the release of its 4Q13 results on Mon, 27 Jan 2014 (post trading hours).
OSIM expects to record re-measurement gains from its increase in shareholding in TWG Tea to a controlling stake, but this would be partially offset by impairment charges on ONI Australia and its Brookstone senior preferred notes.

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