Oregon’s attorney general filed a lawsuit against GNC Holdings Inc (GNC US, not rated), claiming it sold supplements made with illegal ingredients, on 23 October 2015.
The lawsuit claims that GNC knowingly sold products laced with two synthetic drugs:
1) picamilon, a prescription drug used in Russia to treat neurological conditions and
2) beta-methylphenethylamine (BMPEA), a synthetic amphetamine-like chemical.
Amphetamine is a central nervous system stimulate used in the treatment of attention deficit hyperactivity disorder and obesity among other things. According to the lawsuit, GNC stopped selling products containing picamilon in Sep-15 after the Oregon attorney general’s office notified GNC that the retailer was engaged in unlawful trade practices. In Apr-15, GNC had stopped selling BMPEA products after the US food and drug administration issued warning letters to a handful of supplement manufacturers listing the chemicals on their labels.
What’s the impact?:
We spoke with OSIM’s management and understand that its GNC franchised outlets do not sell products containing either of the banned substances. OSIM is the sole franchisee for the GNC brand in Singapore, Malaysia, Taiwan and Australia through its 94.9%-owned ONI Global Pte. Ltd.
What we recommend?:
As such, we do not expect ONI Global to face any material negative impact on its sales. We maintain our Outperform  rating and PER-based 12- month target price of SGD1.88 for OSIM.
Key risk to our call would be TWG tea litigation and a poor take-up rate for its new products. OSIM is scheduled to announce its 3Q15 results on 27 Oct-15 after market hours. (Read Report)