1 Reason to Be Optimistic for OSIM International Ltd

OSIM International Ltd (SGX: O23), best known for its namesake-branded massage chairs, has had a rough year so far.

In the first nine months of 2015, OSIM’s revenue has declined by 11% year-on-year. The lower sales in turn has lead to a big 44% drop in profit over the same period. OSIM’s weak business performance has not gone unnoticed. Shares of the company have tumbled by 47% since the start of the year.

Amidst the wreckage, there is one worrying as well as one positive sign about the firm. Here they are.

1. Worrying sign: Falling free cash flowclick here

2. Positive sign: Healthy balance sheet

Despite the downturn in revenue, OSIM’s balance sheet has held up well.

The massage chair maker recorded $212.5 million in net cash (total cash & equivalents minus total borrowings) as of 30 September 2015. This is a healthy figure to have in a tough retail operating environment.

OSIM’s cash and equivalents, borrowings, and net cash positions over the past few quarters are summarised in the graph below:

image (6)

Source: OSIM’s earnings announcement

While OSIM’s balance sheet is still strong, it’s worth noting that the current net cash position has fallen from the $260.2 million seen at the same time last year. Coupled with the negative free cash flow OSIM recorded during the recent fiscal third-quarter, we may want to keep a watchful eye on its balance sheet.

Foolish summary

OSIM’s core markets remain soft, so the tough operating environment may continue for a while. A healthy balance sheet gives the management team financial options to launch new products or marketing campaigns. On the other hand, we may want to keep a close eye on OSIM’s ability to generate free cash flow in the coming quarters.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in OSIM International Ltd.