Osim - A Fallen Star?

The former darling stock has fallen from the grace - being quoted at $0.27 as of 28 Jul 08.

There have been many sceptics as well as many contrarians about the business of Osim, debates about empty showrooms vs low-volume-high-margin products, strong branding power, superior products etc.

In the recent years, performances had been hit by the negative news in China from the imitations and copy-cat competitors, as well as the "indigestion" (high interest costs & 3 quarterly losses/ per year kind of business) from swallowing the elephant - Brookstone.
With the US recession and possibly slower-growth around the world in the coming period, Osim would be facing a uphill task in improving its results.

Does the brand of Osim really have the pricing power, with so many competitors coming up? Will it be like Lifebrandz and its Extrim products that frizzled-off and fell after a spectaclar performance during its early stage of product-life cycle?

Osim has announced strategy of roll-out more new products in the shorter span of time to fight competitions and to boast sales- looks like a desperate attempt to me, not too different a strategy used by Lifebrandz to fight a losing war on declining sales.

It remains to be seen if the branding power of Osim can keep it business rolling-forward.

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d.o.g.

Forum Sage

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Posts: 810
Registered: 10-12-2003
posted on 8-5-2007 at 11:37 AM


Quote:
With all their main business still healthy in US and other parts of the world

A look at their latest financial results suggests otherwise. In particular the China business dropped by half. In the US it remains a challenge to make Brookstone consistently profitable.

2 key points:

1. Business Fundamentals. IMHO the massage accessory business was never all that attractive to begin with. Even in its heyday, I don't recall Osim's net profit margin ever clearing 10%. Considering that Osim is a brand manager with no manufacturing assets to deal with, 10% is not a difficult hurdle. But Osim didn't help itself with lots of high-rent locations (see: Breadtalk). And with competitors jumping in left and right, the margins could only go down.

2. Execution. The Chinese have a saying: a snake cannot swallow an elephant. Brookstone was a much bigger entity than Osim. Ron Sim has slowly discovered that it is not easy to change corporate culture. Furthermore, he is crossing an ocean to do it. And there is the race factor: for all its melting-pot claims, corporate America remains a difficult nut for minorities to crack. Historically, most mergers and acquisitions have failed, and Osim's particular odds with Brookstone could politely be described as challenging.

As usual, YMMV.

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Munger
Junior Member


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Post: #19RE: OSIM International Limited - WS8's darling

Massage chairs, leg massagers, body shapers and those gallopers ( sorry, I do not know their proper names ) are not what you termed as “needs” for most consumers. These are what people buy if they have extra money or when they happen to buy on impulse. Some must have regretted after buying huge massage chairs and finding them being under utilized in their small HDBs or condos . The other products are merely gadgets. These gadgets attract some attention when first released but sales soon tapered off as imitations from competitors surface and interest from consumers wane at the same time. Products thus have very short lifespan and more money is needed on R&D to improve on existing products or to introduce new products.

We have to understand that these so called health care or lifestyle products are merely fads that last for months and not years. Companies selling these products have to compete against each other on pricing and quality. Higher priced products like massage chairs are now facing an uphill battle as they have to compete against other household gadgets like LCD TVs, Desk Top computers and Notebooks that are selling between $1000 to $2000. In the past, LCD Tvs, Plasma Tvs and notebooks cost upwards of $3000 , massage chairs that cost below $3500 had a fair chance of attracting the consumers dollars . Consumers were then waiting for prices of TVs and notebooks to come down. These days note books and LCD/Plasma are cheaper than most but the lowest priced Chairs. The choice is clear when deciding between a notebook for the children or a massage chair for the parents. Or between a new TV for the whole family or a massage chair for the grandparents.

So these higher priced ( higher margins as well ? ) massage chairs are no longer moving out of the showrooms. Not that these were selling like hotcakes previously. Just like Winston , I do not know anyone who have bought a massage chair. I do not even know anyone who knows anyone who bought one !!! But maybe I have very few friends.

I am not sure that their health supplements business is a cash cow. I knew that the company was struggling before being bought over. They have too many outlets at too many expensive shopping centers. It is not easy to compete against other big guys like Unity ( NTUC ), Guardian ( Dairy Farm ), Nature Farm and to some extent , Watsons . Add a few MLM ( no rentals and salary burden ) guys into the mix and you have a tough time trying to cover rising rentals and labour costs.

Ok, so far we have been discussing about the merits or demerits of this type of business.

We are all debating how many teeth a horse has. But someone said that the best way to know how many teeth a horse has, is to open the horse’s mouth and count those teeth.

(I am looking at their last financial year end….though a glimpse of their latest quarter continue to see falling sales and weak cash flows )

On opening the horse’s mouth and looking at their year end financial statements you can see that sales have dropped from $623 mio to $523 mio. Sales in North Asia and South Asia have both dropped dramatically. Only sales in M.E. , Europe and US showed an increase ( BUT latest quarter shows a drop compared to last year Q 1 ).

This is consistent with products of this nature. Interest in these products tend to die a natural death after an initial boost during fresh launches in new countries. How many consumers will buy a second massage chair to replace the first one ? Most people have to buy another TV or notebook to replace the old ones but massage chairs ?

Looking at the balance sheet, one see current assets of $144 mio and debts ( current and long term ) of $199 mio. Of the $144 mio in current assets , you see $71 mio in inventories, approx $44.6 mio of receivables in various forms. Only about $27.7 mio cash but $199 mio debt.
In the cash flow statements, you will see that for 2 years in a row that cash at the end of the year is lower than the beginning of the year.

Now that we have counted the teeth, it is up to the individual investors to decide whether they should bet on this horse. One must also be aware that stock price movements sometimes do not depend on fundamentals. Prices can move up or down due to short term supply and demand.

For traders who trade on expected price movements, the criteria is purely that. Traders can make money from any stocks, good or poor fundamentals, as long as it moves.
However ,for investors looking to for a business to buy, you will have to decide whether a business is sustainable going forward.

This post was last modified: 23-04-2008 11:21 PM by Munger