On cusp of transformation. OSIM International is renowned for its
massage chairs, the core of its original business. However, over the
next decade, we see the company blazing the same path in lifestyle
products as France-based LVMH did for fashion in its initial years,
amassing more than 60 brands through a series of M&A activities to
become the luxury fashion powerhouse it is today.
A brand incubator. OSIM is in pole position to become the king of lifestyle brands in Asia, a crown still up for grabs. It is already the undisputed brand leader for massage chairs. As the master franchisee of GNC, it has pushed this health and nutrition brand into a dominant market position in Singapore and Malaysia, and is replicating this model in China through its own RichLife brand. New acquisition TWG Tea is poised to revolutionise the way Asians perceive tea drinking. Underlying this relentless pursuit of growth is an unrivalled know-how in Asian retail and a passion for brand building.
Higher margin than the Birkin bag. Companies with true brand equity are able to command pricing power and sustainable margins. OSIM’s margins are comparable to any global retailer, including Hermes and LVMH. While luxury brands are scrambling for a foothold in Asia, OSIM already has extensive retail experience in North Asia and a favourable exposure to this market, making it the envy of global competitors. Yet, it is trading at more than 40% discount to them.
A cash generator. Contrary to popular perception, OSIM has always been a business that generates very strong cash flow, thanks to its high-margin products and low working capital requirements. While there have been concerns about its high gearing in 2008, the company is in a net cash position today and paying out healthy dividends.
A brand incubator. OSIM is in pole position to become the king of lifestyle brands in Asia, a crown still up for grabs. It is already the undisputed brand leader for massage chairs. As the master franchisee of GNC, it has pushed this health and nutrition brand into a dominant market position in Singapore and Malaysia, and is replicating this model in China through its own RichLife brand. New acquisition TWG Tea is poised to revolutionise the way Asians perceive tea drinking. Underlying this relentless pursuit of growth is an unrivalled know-how in Asian retail and a passion for brand building.
Higher margin than the Birkin bag. Companies with true brand equity are able to command pricing power and sustainable margins. OSIM’s margins are comparable to any global retailer, including Hermes and LVMH. While luxury brands are scrambling for a foothold in Asia, OSIM already has extensive retail experience in North Asia and a favourable exposure to this market, making it the envy of global competitors. Yet, it is trading at more than 40% discount to them.
A cash generator. Contrary to popular perception, OSIM has always been a business that generates very strong cash flow, thanks to its high-margin products and low working capital requirements. While there have been concerns about its high gearing in 2008, the company is in a net cash position today and paying out healthy dividends.
Potential acquisitions not a concern, initiate with Buy. We believe
the likelihood of impending M&As has been a stock price overhang,
given the negative experience with OSIM’s purchase of Brookstone. But
we beg to differ. OSIM currently has a much stronger balance sheet
and profit base to absorb new businesses, lowering execution risk
substantially. It is the cheapest high-end brand-owner in the region, in
our view. We initiate coverage with a Buy and target price of $2.02,
pegged at 18x FY12F PER for a 68% upside.
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