Category Archives: OSIM

Capital reduction

We all know that for a company to operate, there is always a need for capital. Capital can come in the form of cash input from the owners of the company and, if the company has been profit-making, funds can also be re-channeled into the business instead of distributing to the owners. If the business is a public-listed company, then additional capital can be raised through IPOs and rights issues. All these form the equity capital for the business. There is also another type of capital known as debt capital. This involves borrowing from financial institutions such as a bank or through unsecured borrowing such as raising bonds and notes. Then, there is also preferential share, which depending on how one looks at it, can be seen as equity capital or debt capital. All these form the various avenues for the directors to tap upon to enable the company to operate as an on-going concern and, of course, to optimize shareholders’ value.

 

When a business is in need of funds, the directors would have to look into what channels can be tapped to inject funds into the business before the business run into cash-flow problems. In the past one to two years, we have seen several offshore and marine related companies and business trusts running into cash-flow problems because the business were deprived of capital injections. Swiber Holdings, Erza Holdings and Rickmers Maritime are just few eye-catching examples that cropped up recently due to difficulty in seeking additional funds for their businesses.

 

 At the other extreme, there are also companies that have ‘extra’ capital in the form of cash that it becomes necessary to carry out a capital reduction in order to optimize the capital structure of the business.  Capital reduction can come in several forms, and this usually ends positively for shareholders. It can be carried out through share-buyback program in which a company buys back its own shares and then cancels them out at the treasury. This, in the way, reduces the number of shares in the market and thus increases share price per share. OSIM as well as several American companies had previously done this after emerging from the global financial crisis in year 2009.

 

Another form of capital reduction can be in the form of returning capital back to shareholders. A good example is IPC. IPC had been a penny stock before its consolidation of 10:1 in 2015. Its share was around 3 cents in year 2004 and around 6 cents during the global financial crisis. During the normal times, the stock price had been oscillating between 9 cents and 17 cents. The business had undergone a significant transformation changing from a PC manufacturing company in the 90s to a hotel operator today. With the sale of 7 hotels in Japan followed by a share consolidation of 10 shares into 1, the company returned a total of about $136.5m to the shareholders. Hence on the balance sheet of the FY 2016 financial report, the share capital was reduced from $169,658,000 to 33,190,000. Each shareholder got cash return of $1.60 per share after consolidation even though the number of shares that one holds remains unchanged. This means that those investors who had purchased the share at an average price of 16 cents or below before the shares consolidation would have recouped and profited for investing in IPC. Of course, the share capital on the balance sheet of IPC’s financial statement is set back by $136.5m, meaning that the scale of the business has been down-sized, but who really cares if we are in a business with no money down and had enjoyed the dividends that had been distributed previously. Hopefully, going forward, the management continues to deliver and help increase shareholders value. This would help maintain the stock price and possibility of future dividends in the currently scaled-down business. Perhaps, the cash return had been partly due some pressure from the substantial shareholder, Mr Ooi Hong Leong, who owns 30% of the business. But, again as an investor, is it not what we are looking for – an investment that provides us a solid return somewhere in the future with consistent income along the way?

 

At the moment, unfortunately, the stock has been quite illiquid due to the mandatory stock consolidation. Even though there is a trading price of between 50 and 60 cents per share, it is still not worth trading the stock as it is difficult for one to buy or sell the shares optimally due to its trading liquidity, which resulted in steep share price changes.   With the only hotel business left in China, it is hoped that company delivers another magic to maintain the share price that come with future dividends. Of course, it does not preclude the fact that it may have to raise funds for expansion in the future. But at the moment, it’s a nice feeling of enjoying a significant profit and, at the same time, participating in a business with no money down due to its capital reduction exercise. 

 

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy. Analyses of some individual stocks can be found in bpwlc.usefedora.com. Registration is free.

   

 

Sell in May and go away strategy: Why not a contrarian view?

The old saying sell in May and go away strategy seemed to have taken its toll this year when STI was sharply sold down from 2960.78 on 21st April to 2730.8 on 6th May 2016, a drop of 230 points, representing about 5.8% decrease on the ST index. After that, there appeared to be an increase in volatility as the bull and the bear tussled to tip over each other. By the end of today, after approximately 3 weeks of trading or so, the ST index ended at 2791.06, a mere increase of 60 points from 6th May.

According to The Straits Times (ST, 30 May 2016), it happened four out of five times in the last five years. If that view still holds true, then would it not be interesting for us to take a contrarian view and buy into the market when we bade farewell to the last ship that left us. And, of course, if they do return going forward, we can slowly sell back to the market.

Slide28

Frankly, taking advantage of this apparently universal ‘market theory’, I was actually a net buyer in the month of May. After all, isn’t it important that to gain from stocks, we should either be ahead of the market or, if we are courageous enough, even to act against the market movement. Otherwise, we are just a market follower moving up and down with the market. When market tanks, we lose; and when the market roars, we win. That said, I bought back some of the stocks that I had sold in April such as Jardine C&C and IPC to pocket the difference and yet maintain my original exposure in these stocks. In other words, I ‘squared off’ my position.

Hopefully, I am well-positioned when there is a big buy to propel the market. There could, however, be a stumbling block this year as the spectre of higher interest rate can derail this strategy. Big investors and fund managers may not return any time soon as they go in search of better yield elsewhere especially when local economic outlook still looks uncertain. Should such an event happens, it would affect the market liquidity. Accordingly, we should expect the spread between lending and saving to widen, thereby benefiting the bank stocks. With the cash return from OSIM, following the privatization plan by its chairman and CEO, Mr Ron Sim, I had also increased my stake in the bank stocks. However, one has to be careful about over-exposures in bank stocks in an increasing interest rate environment as non-performance loans (NPL) will also increase as well. If the interest rate continues to perk up, it will come to a time when the deteriorating asset quality will overwhelm the benefits of higher interest margin.

Happy investing!

Disclaimer:

This article is not a recommendation or an advice to buy/sell the mentioned stocks. It is a sharing of his opinions with the readers.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Good-bye to OSIM (partially)

As I thought through, perhaps I will make a partial sale of my OSIM shares to Vision Three, a private investment vehicle of Ron Sim. For good or for bad, at most, I become a minority interest holding some shares of OSIM as a private company.

OSIM-logo

However, the way I see it, looks like Ron Sim should be able to take OSIM private. By yesterday on 27 April 2016, he had garnered 88.84% of the total issued shares. With about 2 days to go, I think that he should be able to cross the threshold to take over the company private.

Well, now it is time to think where to deploy the returned cash for another, hopefully, a multi-bagger.

Good-bye OSIM!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

OSIM – new cash offer of $1.39 per share

Since the new cash offer of $1.39 per share more than a week ago, Mr Ron Sim through his private investment vehicle, Vision Three Pte Ltd, has now owned a total of 554,456,143 shares. This represents about 74.77% of the total share outstanding as of 5pm on 13 April 2016. Since the announcement of the cash offer to take OSIM private, Mr Ron Sim’s stake has increased by 5%. This means that there are 187,137,413 (or 25.23%) shares still remains in the float. Although the closing date has now been postponed to 29 April following the new cash offer, it is drawing closer by each passing day.

Slide12a_cr

Now is the mid-point between his new offer and the end of the offer date. Given that he has accumulated an additional 5% of the total shares outstanding to date, therefore, it is within expectation that he should be able to accumulate another 5% in the next few days. This would mean that he should have more than 80% (or even 85%) by 29 April 2016. However, I am not sure if at this price, it is able to cross-over the 90% threshold to take the company private. There will definitely be some reluctant shareholders who would not sell their shares at this price as they might have bought the share at a high price when the share price of OSIM crossed $2 per share.

If we look at the situation from the Mr Ron Sim’s perspective, for every 1-cent increase in his cash offer, it is going to set him back by about $2.2m (excluding the extra fees and additional costs). Therefore, it is of course in his interest to set a price just to cross the threshold of 90%. Hence, each step increase is not likely to be significant. However, I do believe that if he sensed that the threshold is within a ‘striking distance’, he may make a final higher offer to reach his objective. As a shareholder since the global financial crisis in 2009, I shall closely monitor the progress in the next few days before making my decision.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

 

OSIM share price

Mr Ron Sim, the chairman and CEO of OSIM international made an offer to buy the rest of OSIM shares not own by him at an offer price of $1.32. According to sources, he owns 69.25% of the shares issued. That means that the free float is about 30% (assuming no shares in the treasury which is highly unlikely). Nevertheless, that still means about $300m price tag to buy up all the shares currently not own by Mr Ron Sim.

Frankly, many retail investors who bought during the good days when OSIM on an unprecedented growth path for 21 quarters would have been disappointed.

Slide9

Those who had bought the shares between 2nd half of 2012 and even until Q3 of 2015 would have been “out-of-money” based on this proposed offer and may not likely to accept this offer. (Of course, it may not be that simple as there are infinite trade possibilities.) All said, the trading price over the next few days should set the tone whether the minority shareholders, as a whole, are happy with the offer price. Based on closing price of consistently above $1.32 over the last few days, it appeared to indicate that minority shareholders may not accept the price offer of $1.32 even though it appears that the premium over the offer price is waning.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.