OSIM International - Maybank Kim Eng 2016-03-07: Willing Buyer, Unwilling Sellers?

OSIM INTERNATIONAL LTD O23.SI

OSIM International (OSIM SP) - Willing Buyer, Unwilling Sellers?

Major shareholder Mr Ron Sim has offered to privatise at SGD1.32, valuing OSIM at 8x EV/EBITDA and < 12x P/E on average FY10-14.
Depressed FY15 is not a good year for comparison. Mr Sim may need to up the offer to succeed but he may only offer up to SGD1.46 if pressed. It will be a close race.

There is risk of being stuck in a suspended stock but not getting enough shares to delist will also be expensive for Mr Sim.
Wait for a better offer, if any, failing which accept at the last minute.

We think a fairer offer could be up to SGD1.63 or 10x EV/EBITDA, just under the average valuation of regional and global peers. However, Mr Sim may be willing to offer up to only SGD1.46, based on our assessment of his banker’s likely lending criteria and Mr Sim’s willingness to borrow.

With OSIM’s share price down from an all-time high of SGD2.94 and 52- week high of SGD2.04 and trading at SGD1.32 as recently as Nov 2015, there is likely to be a lot of investors with much higher holding costs. From this perspective alone, we think Mr Sim will not get a lot of acceptances.
Institutional shareholders own only 10.3% and is not enough to swing the 27.7% in acceptances he needs to compulsorily acquire. It will be a close race Shareholders run the risk of being stuck in a suspended stock if Mr Sim gets only 153.9m in acceptances. That will take him over 90% of issued shares but not enough to delist entirely.
Only if he gets 90% of minority shareholdings (205.2m needed or 97% of shares issued) can he proceed to delist.
On the other hand, this should be an expensive transaction for Mr Sim, hence it will be in his interest to make sure he gets enough to delist. Anything less will just be a waste of money.

Growing economies of scale for TWG and lower legal costs for two lawsuits should ease cost pressures in 2016.
Massage products could rebound if currencies stabilise and consumer sentiment recovers.
Acquisition of new businesses that could immediately contribute to profits.

Core massage chair market could be approaching saturation. Growth may lag even if currencies stabilise and consumer sentiment improves.
TWG expansion may be protracted or revenue growth may not be enough for scale benefits to kick in.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-03-07

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.46 Up 1.20