Osim International

Contents 1. Introduction to Osim International4 2. Competitive Strategy4 3. society grade range of mountains4 3. 1Innovation5 3. 2Operations caution5 4. Non- pecuniary analysis5 4. 1Corporate Social Responsibility5 4. 2Consumer Sentiments6 4. 3Corporate Culture6 4. 4Customer Retention and Growth6 5. Global outlook7 6. Industry outlook of healthy life style harvest-times7 7. simile between Osim and its competitors8 8. Osim Financials8 8. 1Companys Financial Ratios8 8. 2Market Prospects9 8. 2. 1Osim on its own9 8. 2. 2Osim vs. Selected peers (VGO, Best World, Ogawa, Jacks)9 8. 2. 3Osim vs. STI10 8. 3Projected Performance10 9. Conclusion11 accompaniment A12 auxiliary B16 Appendix C19 Appendix D24 Appendix E25 Appendix F26 ? 1. Introduction to Osim International Osim International Ltd. (Osim) is a Singapore listed company a globose leader in the healthy lifestyle products manufacture. It has been led since its inception by CEO Ron Sim, the companys value driver, instrumental in bringing Osim to where it is today, greatly influencing its vision, mission and values with his personal touch. The company has expanded to more than 1,100 stores in more than 30 countries worldwide. Within the following(a) 3 to 5 years, they plan to open over 50 outlets and further expand their subsidiaries, GNC and RichLife. . Competitive Strategy In view of the current economic situation, Osim seeks to cautiously and optimistically focus on building payability, demonstrable EBITDA and operating cash flow . Even though they have exceeded sales expectations so far this year, this whitethorn be challenging given that they operate in a niche market easily affected by consumer sentiment and other global events. Osim feels a voiceless balance sheet is integral to meeting this convey, achievable through enhanced operational efficiency and outlets being leaner and more effective in sales. With Brand Osim, they desire an image that is one with (the) healthy lifestyle .This demonstr ates their aspiration to not only be the market leader, but to also be the denounce with the best recall and association. Furthermore, Osim adopts a two-pronged approach of innovation and growth creating demand through innovation and development to support the anticipated US market recuperation and the Chinese markets elaborateness. There is also focus on their closely important resource, employees training and empowering talents with emphasis on corporate culture alignment. 3. Company value chain Osims value chain involves two main processes Innovation and Operations Management. . 1Innovation Research and development (R&D) is a process given much emphasis as Osim strives to release new and relevant products to create demand and to keep a technological edge above its competition, resulting in products such as the iDesire and iMedic amongst others. This has won consumers and its efforts were rewarded in 2008, voted as Asias most preferred mark off for massage chairs . This is al so inculcated in their brand image with their desire to include intelligent innovation . 3. 2Operations Management Operations management includes Osims manufacturing and retail arms.Upon subjecting raw material to their respective manufacturing processes, Osim creates a product that it believes will add value for consumers and entice them to pay a premium to obtain their desired lineament of life. Its retail arm works with an aggressive market department to promote their products. Whilst costs are high, the perceived product value added is proportionately high. 4. Non-financial analysis 4. 1Corporate Social Responsibility Osim aims to encourage a positive attitude towards healthy lifestyles. Osim Triathlons in various Asian countries , and the Osim Singapore know are some sporting events it has sponsored.While Osim promotes itself as a lifestyle brand, for example, through the promotion of the uSqueez leg massager which appeals to triathletes, they have also donated to the Childr ens Cancer insane asylum and supported an endowment fund with the NUS Business School . Osim has also demonstrated accountability to society by recalling its products twice . The urgency to recall defective products has saluten Osims commitment to civic responsibility. However, the recall affected Osims reputation as customers were put through the hassle of claiming damages.Despite this, Osims branding remains strong and is still one of the worlds most reliable providers in its industry. Accountability to investors was also demonstrated when they came in runners-up in the Most Transparent Company Award (Commerce) in SIAS Investors Choice Award. 4. 2Consumer Sentiments In a 2008 survey by Synovate , Osim attained the No. 1 Healthy Lifestyle Products Brand in consumers minds crossways Asia. The findings show Osims strong Asian customer base and affirms its effective branding as a leading provider of innovative products with design and quality, performance, and synthetic rubber sta ndards.Furthermore, massage chair sales in China has maintained good growth with easy-to-buy payment schemes. 4. 3Corporate Culture A strong corporate culture inculcating positive thinking has been used as a tool to survive market movements. This tool is behind the entrance of new innovations and the extension of Osims reach into the global market. Besides this, substantial sellholdings by key management ensures management goals are correctly aligned with that of parcelholders . 4. 4Customer Retention and Growth In 2005, Osim was rated by Nielsen Consumers as the itemize one brand in seven attributes .Osim is also a member of Superbrands . To date, higher end products are made in Japan, a country acknowledge for its quality and precision . Mid-tier to lower end products are manufactured in China to reduce costs. Although manufactured in China, Osim ensures reliability and quality of these products. The market share gained from the provision of quality products has been shown in the same Synovate survey as mentioned above. Osim has also invested heavily in marketing, often publishing its advertisements in various media to increase its brand presence.These include centrespreads in major newspapers as well as television commercials, reigning in celebrities such as S. H. E and Fiona Xie. This fortifies their brands credibility, with the aim of converting new customers and retaining current ones. In a way, they have already created a strong and secure customer base and exclusive attention can be placed on gaining additional market share within the region and globally. 5. Global outlook Since the global recession, the market has rebounded with the STI currently trading around 2,600 points, a level last seen a year ago .We are currently believed to be in the accumulation phase , with economic growth judge in the coming years. Global markets have stabilized while key export markets such as the US and Europe remain fairly weak . A rapid retrieval is in line for As ian economies, but continued soft private demand means that fiscal and monetary measures must be sustained to ensure continued growth. 6. Industry outlook of healthy lifestyle products Osims business efforts are concentrated on an increasingly affluent Asia , particularly in countries like Singapore and China, where there is greater focus on lifestyle and well-being.Health is a greater concern as busier schedules reduce habit time. As Asias aging population finds new ways to improve their living standards, more may turn to increasingly relevant healthcare products. However, the lifestyle industry is most vulnerable to fluctuations in business cycles. With the downturn, spending is either decreased or cheaper alternatives are sought. 7. Comparison between Osim and its competitors Osims main competitors in the health-food industry provide competition to its subsidiary, Global Active Limited.Its main recognized competitors in the massage products markets include OGAWA, OTO Bodycare a nd Panasonic. Osim thus relies heavily on innovation, aggressive marketing and quality to distinguish its products from its competitors, leveraging on the fact that consumer preferences are easily influenced. Another form of competition comes in the form of imitations and inexpensive Chinese products that separately devalue Osims brand and provide viable substitutes. This forces Osim to differentiate itself as a premium product and introduce a secondary brand, NOVO, to woo consumers with its affordability.With the expected future growth in the healthy lifestyle products industry and Osims stronghold on its base consumer markets, we expect Osim to continue outperforming its competitors, especially in its sum business function. 8. Osim Financials 8. 1Companys Financial Ratios Osims profitability ratios have been weakening over the last 5 years, with sharp declines from 2006 onwards. Profit margins dropped from the healthy region of 9% to 0. 6% in 2007 and finally into the negative i n 2008. Other returns ratios like ROA and hard roe have also dropped significantly from 2005 onwards.Osims sales fell from a high of S$623million in 2006 to S$457million in 2008. The low profitability ratios suggest that the company is not effectively utilizing its assets and shareholder investments to generate sales and profit, which is a cause for concern for potential investors. Its dwindling sales and profitability can be attributed to fierce competition from imitations, as mentioned above. Also, Osim spent S$149million to acquire 55% of Brookstone Inc. in 2005, which did not work out well, as Brookstones losses dragged down Osims profitability from 2006 onwards.Osims liquidity ratios, despite the poor financial performances in the aside few years, have remained relatively stable. Current ratio has stayed consistently above 1, bar 2007, which implies that the Group is able to meet its short circumstance liabilities with its short term assets. Interest coverage has been falling sharply, primarily due to the fall in operating profits. In order to continue its repayment of wager charges, profits have to improve. 8. 2Market Prospects 8. 2. 1Osim on its own Generally, share prices have been on a strong downward trend since 2006, with MACD crossing below zero for most of the period.Osims share price plunged 98% from a high of S$2. 06 in 2006 to a low of S$0. 05 in the start of 2009 before show signs of recovery, rising from below S$0. 10 to the young stability of around S$0. 45, an increase of more than 400% during the period from March to September 2009. The late bullish trend has also been reflected in the strong divergence of the MACD over zero. 8. 2. 2Osim vs. Selected peers (VGO, Best World, Ogawa, Jacks) During the last 5 years, Osim fared poorly compared to its industry peers.It was the worst performing line of work out of the 5 selected companies over the period from 1Q07 to 1Q09. However, focusing our attention on more recent developments, Osims share price has been outdoing that of its competitors significantly, due to its strong recovery since 1Q09. Osims stock has risen at a higher rate, and been the best performing in terms of absolute value. Another interesting factor is the recent significant increase in insider trading, with senior management aggressively purchasing the company stock and subscribing to excess shares through the companys rights issue .in concert with the hints of recovery from recent financial figures, the purchase of shares by Osims management and confidence shown in the company might just be the confirmatory channelize of their turnaround in fortunes. 8. 2. 3Osim vs. STI On a 5-year basis, comparing the performance of Osims share price against the STI, we observe that generally, it has been underperforming relative to the STI. The period between mid-2005 and early 2007, which coincided with Osims best financial performance, saw the company outperforming the market.Since 1Q07, it has been underperfo rming by a large margin until the recent superior performance relative to the STI starting from April 2009. 8. 3Projected Performance sagacity from the 9 month 2009 figures, sales appear to continue sluggishly and we estimate the total sales for 2009 to be inferior to that of 2008. However, EBITDA has increased by 16% as compared to the same period last year. Having fully written down the investment in Brookstone, future losses need not be accounted for, and Osims profit before tax is expected to improve to around S$33million for 2009, a marked improvement from 2007 and 2008.Projected profitability ratios also suggest signs of recovery with ROA and roe estimated to be around 9. 02% and 21. 36% respectively. Liquidity ratios for the Group remain healthy as well, as at 30 Sept 2009. Post restructuring, Osim has emerged leaner, significantly piercing down expenses over the past 2 years. Hence, if sales pick up in the future, we should see a return of the high profit margins realized in the past. Osims current Net Asset Value (NAV) per share is S$0. 14. Compared against the average share price of around S$0. 45 over the past 2 months, the Price-to-book ratio is about 3. times, implying that the stock may be overvalued. However, the general price-to-book ratio for an average company is 7 times , showing that Osims share price may still rise in the future. 9. Conclusion With Ron Sim at the helm and the alignment of the senior management with company objectives, Osim stands poised to achieve its goals in the short term with its aggressive marketing and focus on a strong balance sheet during this time of economic uncertainty. They have earned the sureness of consumers through the provision of quality products and good corporate governance.While they have effectively lowered costs, revenue remains sluggish. They plan to improve this through expansion in emerging markets as well as to take advantage of Brookstones strategic positioning in American markets. Whilst ha ving derived ways to compete effectively, and with the industry expected to grow, private consumption will still be depressed amidst this period of economic recovery due to a lag effect. Defining a medium to long term as between two to five years, we thus projected that Osim, on its own will continue to be paying as a going concern.While we recognise that outside the industry, there are many superior alternatives that have the potential to generate far recrudesce returns, which is beyond the scope of this report, we recommend that with regards to an investment solely in Osim or in the Healthy Lifestyle Products industry, Osim is clearly the worthwhile choice to invest in. Appendix A Profitability Ratios 20082007200620052004 Profit permissiveness (%)-21. 780. 65. 429. 299. 2 ROA (%)-46. 580. 868. 0510. 214. 6 ROE (%)-141. 921. 9619. 8728. 9726. 16 Cash Flow/Operating Revenue (%)-17. 984. 957. 8911. 812. 6 Profit Margin (%)-21. 780. 65. 429. 299. Profitability ratios measure the re turn earned on a companys capital and the financial cushion relative to each dollar of sales. Osims low profitability ratios in recent years are a cause for concern. However, much can be attributed to the economic crisis and the write-off of Brookstone in 2008. Liquidity Ratios 20082007200620052004 Current Ratio1. 090. 951. 021. 111. 87 apace Ratio0. 480. 450. 450. 671. 38 Interest Coverage-19. 052. 067. 751750. 95 Current Ratio1. 090. 951. 021. 111. 87 Generally, despite the poor performance posted in 2007 and 2008, Osims Liquidity Ratios remained relatively stable.This implies that there are no issues regarding the solvency of the company and resources are available to meet its obligations. 20082007200620052004 P/E Ratio (%)n. a. 103. 6422. 415. 2912. 48 Dividend Payout Ratio (%)0219. 4332. 2315. 3415. 39 P/E ratio is an indicator of perceived value of a stock. Osims unusually high P/E ratio in 2007 is due to the low EPS resulting from the poor performance posted in that year. Os im has been consistently paying out dividends until 2008. Hence, should performance improves in future, investors should expect to receive dividend payouts. Appendix B Projected Performance -Month Key FinancialsEstimated Figures for 2009 Sales335. 9450 EBITDA33. 845 Profit before Tax24. 533 Net profit16. 121 undecomposed year figures for 2009 determined based on pro-rating 9-month figures to get conservative estimates. (in $millions)9mth 20099mth 2008% change2009 Estimated20082007200620052004 Sales335. 9346. 2-2. 98%450456. 7523. 7622. 9502. 5332. 2 EBITDA33. 829. 116%453935. 476. 754. 545. 4 Profit before Tax24. 5-19. 5225. 64%33-92. 25. 443. 651. 435. 3 Net profit16. 1-26161. 92%21-99. 53. 735. 845. 630. 8 (in $millions)9mth 20099mth 2008% change2009 Estimated20082007200620052004 Sales335. 9346. 2-2. 98%450456. 7523. 7622. 502. 5332. 2 EBITDA33. 829. 116%453935. 476. 754. 545. 4 Estimated Financial Ratios for 2009 (With Balance Sheet as at 30 Sept 2009) Profit Margin (%)4. 67 ROA (%)9. 02 ROE (%)21. 36 Current Ratio at B/S date1. 16 2009 figures suggest Osim is on the road to recovery. Projected Profit before Tax show improvement compared to 2008 and 2007, though not to the extent of 2006s high. Compared to 1st half of 2008, 2009 has shown improvement in EBITDA even though sales continue to be weak. .Charts with Projected 2009 Ratios Appendix C Osim Stock Charts 5-Year 1-Year Comparison against STI 5-Year 1-Year Comparison Competitors 5-Year 1-Year -Year Absolute 1-Year Absolute Appendix D Insider Trades Announcement DateBuyerNumber of Shares (000) 23/2/09Ron Sim2002 13/3/093466 17/3/09953 27/3/0996150 31/3/09200 1/4/09200 6/4/092700 9/4/096500 Subtotal112171 23/2/09Peter Lee320 13/3/09950 31/3/09550 9/10/09270 Subtotal2090 23/2/09Richard Leow300 23/2/09Ong Kian Min1618 24/2/091000 2/4/09752 23/2/09Michael Kan300 2/4/09218 23/2/09Charlie Teo300 27/3/09365 6/4/09100 2/4/09Khor Peng Soon16 Subtotal4969 Total119230 Appendix E ? Appendix F Japans quality in man ufacturing was taken from Fundamentals of Composites Manufacturing Materials, Methods, and Applications by A. Brent Strong