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Background: Osim is a global leader in branded healthy lifestyle products such as massage chairs and health supplements. It operates a wide point-of-sales network with 1,169 outlets in more than 360 cities across 31 countries. Its brands include OSIM, Richlife, GNC and Brookstone.
Recent development: Osim has issued $118.3m worth of convertible bonds maturing in 2016, with coupon at 2.75% and conversion price at $2.025 per share, which is a 25% premium over the last traded price. If fully converted, a total of 59.3m of new shares will be issued, representing 7.8% of Osim’s existing issued and paid-up share capital. The news was not well-received by the public and share price has fallen by 11.1% since the announcement on 7 June. Osim explained the need for capital due to the delay of its TDR listing, its expansion plans in China and possible acquisitions in the near term.
Our view Accumulating cash. As of 1Q11, Osim has net cash of $29m. If we include $26.4m from the 75.4m warrants which CEO Ron Sim has exercised, $76.1m that could be raised from the TDR listing and $118.3m if the convertible bonds were fully converted, its cash would add up to a grand total of $249.8m. Importance of branding. Osim spends around 5% of sales on advertising and promotional activities, inviting world-renowned celebrities and sponsoring events to heighten brand
awareness. To pave the way for its expansion into China, Osim has sponsored the BWF World Super series where 13 international badminton tournaments will be played throughout FY11. The event is expected to reach 500m viewers.
Expansion plans in China. Following the successful debt restructuring at Brookstone stores last year, Osim has turned its attention to expansion into the Chinese market. It targets to open 60-80 new OSIM stores and 60-100 Richlife outlets by year-end. The JV with TWG-Tea will also venture into Hong Kong, followed by Taiwan and China. Store growth for the other brands has been relatively stagnant; however, Osim has mentioned plans for a possible listing of Brookstone to accelerate the turnaround.
Key ratios…
Price-to-earnings: 23.1x
Price-to-NTA: 10.7x
Dividend per share / yield: S$0.02 / 1.3%
Net cash/(debt) per share:$0.04
Net cash as % of market cap: 2.5%
Share price S$1.44
Issued shares (m) 800.4
Market cap (S$m) 1,152.6
Free float (%) 20.6
Recent fundraising activities: Pending proposed issue of 85m TDRs at NT$20.80
Financial YE 31 Dec
Major shareholders CEO Ron Sim (62.3%), Osim International (5.3%)
YTD change -12.2%
52-wk price range S$0.805-1.740
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