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OSIM Proves To Be More Than Just About Massage Chairs
Successful brand recognition happens when someone associates a product with a company.
When someone says quality massage chair, and OSIM International’s (OSIM) name pops up in your head. That, is brand recognition done right.
Traditionally well known for its quality massage chairs endorsed by famous celebrities (e.g Andy Lau), OSIM has, over the years built a portfolio of brands that are yielding good returns.
Brands that fit into OSIM’s total fit of a health and lifestyle image include GNC, RichLife, and of course, the famous luxury tea brand, TWG.
Products under its flagship brand, OSIM, like the range of massage chairs and equipment, have been doing well. In china alone, OSIM has foothold in 45 cities, with about 269 OSIM outlets.
That is about 46 percent of the total number of outlets pie under the OSIM brand. Growth and acceptance of OSIM’s products have been well received, and it is targeting to open 20 to 30 more OSIM outlets for 2014.
OSIM knows too well that relying on one segment alone for the long run is not a viable measure when it comes to the words “growth” and“maximising shareholders’ wealth”
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This is why contributions from its brands are important factors to weigh this stock. GNC and Richlife’s inclusion in its revenue pie has seen higher revenue growth for OSIM over the years.
The acquisition of TWG and the increased stake taken up, which is now 70 percent (previously 30%) adds on further revenue contribution ammo to OSIM.
As a matter of fact, it is the consolidated performance from its flagship brand and brands under its portfolio that saw OSIM achieving 21 quarters of profit growth.
Increasing Revenue, High GPM, Steadily Increasing EPS
Stripping it to a more recent scope of five years, consistency in the yearly figures of Revenue, Gross Profit Margin (GPM) and of course, net profit have also been largely evident.
Its high GPM of nearly 70 percent since FY10 endorses the strength of OSIM’s operating profits .
The steadily increasing EPS from FY09-FY13 also reflected a good compounded annual growth rate (CAGR) of 55.2 percent.
Good portfolio of performing brands Innovative range of products and good brand recognition Superior margins and consistent growth Strong cash chest that more than covers its long term debt
Imitation of products in China, where it has a huge dependency on Share dilution that could suppress EPS due to conversion of convertible bonds Slowdown in luxury goods spending in its geographic markets High customer acquisition costs for its flagship products (e.g. a massage chair, easily more than $5k)
SI Research Takeaway
TWG’s acquisition is one of the best brands ever acquired by OSIM, and contribution wise, this could be a wildcard with massive growth potential under OSIM’s portfolio.
TWG’s network expansion is expected to meet the targeted 45 stores in FY14 (currently 33).
It was also revealed that the TWG stores will also be opened in Taiwan and China (Shanghai and Guangzhou).
We felt that this expanded network will drive further muscle power into TWG’s contribution strength to OSIM’s performance.
On the issue of the conversion of convertible bonds, where convertible bond holders exercise their option before July, it is likely that there will be an occurrence of a dilution of shares.
This is because the current price of $2.81 is already higher than the exercise price of the call option of $1.87.
Although the conversion could see some 65 million new shares haranguing the EPS, the cash saved from coupon payouts, and the lighter liabilities position, will make OSIM’s balance sheet an even lighter one to work with.
This means there will be more opportunities for OSIM to channel its cash chest to fund other good acquisitions. This is a good thing considering OSIM’s track record of good brands acquisition.
I am positive about TWG’s potential in terms of contribution to OSIM’s performance moving forward, and that the consistency in its numbers and strength of its brands will continue to be the key forces driving OSIM.
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