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.

   

 

Just wanting to be a denim jeans provider for the gold rush

This stock was purchased in a few tranches around the peak of the global crisis. It appeared that everyone in the market believed that the company was to close down soon. Thanks to the previous financial year in 2008, its loss was $99 million, the worst since it was listed on the SGX. At the peak of the crisis, it was trading at around 5 cents per share. While the situation was bad enough, the timing of the rights issue made it worse. The entitled rights were 2 for every 9 shares held and priced at $0.055. As one could imagine, the issue was heavily under-subscribed. That provided me an opportunity to subscribe more rights, which the company was eager to sell at that time. The stock was none other than OSIM. Mr Ron Sim, the chairman and CEO, held about 60-65% and some of the directors also held some percentage. That left the market float to be very small, probably 20-30%. 

 

The rest was history as OSIM underwent 22 quarters of growth pushing up the share price to a peak of $2.94 in May 2014. Of course, the share price had gone ahead of its fundamentals, but who cared if one was sitting on a gold mine. To commensurate with the growth, OSIM topped up its dividends pay-out, 2 cents for 2 quarters and one cent for the other two quarters. The dividend pay-out would have meant that I was able to recover my capital on this stock every one-and-a-half year.

There were two choices ahead. Both were happy ones, but not necessary equal. One was to sell out and stay cash, but it would be difficult to find another investment whose return could come near to this. Furthermore, it was difficult to catch the peak. The other was to sit tight and ignore the ups and downs of the stock price. I chose the latter (though, in hindsight, made a wrong choice). Apart from the dividends, what I wanted to play was to be a provider of the share in the shares lending program. This would help provide an additional passive income. I learnt this from the Levi story that happened nearly 200 years ago. It’s a situation of Levi Strauss providing denim jeans to gold seekers during the gold rush in mid-1800. Instead of rushing to look for gold, Levi Strauss chose to be a denim provider for the gold-seekers. In a similar way, instead of trading in and out of this stock, I decided to lend shares to those who were interested to borrow from me. Indeed, the lending was quite brisk. I managed to lend out to the maximum shares offered almost every month. There were not many scripts on offer due to its illiquidity. Of course, by now everyone knew that this happy situation only lasted about 2 years as Mr Ron Sim decided to take the company private around mid-2016. It is a hind-sight now, but was a future that I could not predict at that time. Should I have known that this additional passive income would last only two years, I would have sold them all out and dumped the cash into the bank stocks which I was slowly accumulating then. This additional money would have made it an extremely nice topping. Unfortunately, we are all human beings and we are not able to push our advantage to its maximum.  Just as Warren Buffet mentioned – the rear mirror is always clearer than the front view. But still, the compulsory take-over had made it a 16 times multi-bagger for me, not including dividends and the interest in the shares lending program.

Thanks to OSIM and the shares lending program.                          

 

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.

  

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.

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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-The Q1 results & interim dividend cut likely to tilt the balance towards privatization

Mr Ron Sim through his private investment vehicle, Vision Three Pte Ltd, has now acquired of 5,451,463,164 shares from the minority shareholders. This forms about 6.94% of the total shares. To date Mr Ron Sim, through his investment vehicle, has accumulated 76.19% of the total float. In the meantime, OSIM has just released its Q1 2016 financial results. It was rather disappointing. The net profit dropped whopping 42% to $7.8m even though the revenue dropped only 8% to $138.3m. While the financial results may seem disappointing from a company’s perspective, it may in a way help Mr Ron Sim in his privatization plan. In fact, it is to his advantage if this quarter’s financial results turned out bad.

Due to its consistently poor financial results in recent quarters and, very importantly, a cut in the future interim dividend, it is very likely that the share price would fall. If not for the on-going cash offer made by him through his investment vehicle, Vision Three Pte Ltd, we should expect the share price to fall further. In the normal circumstance, this may be bad for him as a biggest shareholder, but given that his cash proposal is still on the table, it may tilt minority shareholders to sell their shares to him through Vision Three Pte Ltd. With about a week to go, I should expect more shareholders (likely to be more than another 6.94% received in the 1st half of the new cash proposal.) to come forward to sell their shares to him.

Who knows, after the successful privatization, the financial results may once again start to improve.

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: Will it fall off the cliff?

The 1st quarter results has not been encouraging. The revenue suffered a 13.2% and 15.7% drop in the revenue from Q1 2014 and Q4 2014 respectively. Consequently, the net profit attributable to shareholders tanked to about 55% and 52.9% from the said quarters.

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But then, what is in for the shareholders going forward? The gross and net profit of about 73-74%% and between 10-15% respectively appeared quite consistent. To increase profit mean simply to increase the topline, ie. to increase the sales. The operating cost components are fairly consistent between $90m and $95m.

 Assuming a $25m drop in the revenue in Q2 2015 and stay constant there for the next two quarters going forward earnings per share to about 1.62 cents. That should translate to about 6.61 cents for the year. That gives a PE of about 25 based on current price. But this will likely to trigger another round of fall in the share price to about $1.30 and $1.35 (conservatively) as the growth engine has stalled bringing a PE of about 20.

Assuming that the revenue managed to increase to about $170m, and stay consistently there should put the share price back to about $2 or just below it.

The answer lies with the sales team.

 

 

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(Brennen Pak has been a stock investor for more than 25 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.