Story of two ‘O’s

Story of two ‘O’s


Ogawa, a homegrown distributor of up-market massage chairs, has set an admirable track record in its revenue and earnings. The record of rival OSIM shows the global market is scalable, and the potential for Ogawa

OGAWA World Bhd, the distributor of massage chairs and foot massagers, had an uneven experience in its listing recently.

The stock closed at RM1.14 on Friday, holding on to a modest 14% premium over its initial public offering (IPO) price of RM1.00 a share, after a high of RM1.40 on debut day.

This unexceptional performance could be due to a sell-off by some of those who successfully subscribed for the IPO shares.

The company issued 17.2 million new shares to the public and employees while major shareholders made an offer for sale of 36 million shares to bumiputra investors.

Sellers should have considered owning the shares for the long term. Ogawa has built an excellent financial track record in a business that is scaleable regionally as well as globally.

Ogawa is in the same business as OSIM International Ltd which is listed on the Singapore Exchange where the latter was hailed for its ability to grow out of the small Singapore market into large new markets in the rest of Asia and the US.

OSIM has grown to a market value of almost RM1bil, and it even partnered Temasek Holdings Pte to take over Brookstone Inc, a chain store in the US.

Ogawa, which has a market value of RM137mil, is moving in the same direction. With a firm foundation in its home market, Ogawa has started to export its products to regional markets, and the initial efforts look promising.

The group's revenue grew each year from RM52mil for the year ended June 30, 2004, to RM136mil last year and is forecast to reach RM162mil this year.

Exports formed just RM4mil of group revenue in 2004 and had increased to RM29mil last year. It has even managed to plant a foothold in OSIM's backyard. Ogawa's sales in Singapore started with RM2.8mil in 2004, which rose to RM14.1mil last year.

Ogawa has an admirable track record in its net profits which came up from RM4.3mil in 2004 to RM11.7mil and are forecast to grow 37% to RM17mil this year. It achieved that with no borrowings throughout that period.

One of the reasons it could do that is it does not have to invest in plant and machinery. Production is outsourced and the company focuses on product design, marketing and brand management.

Although Ogawa sounds Japanese, it is homegrown, and its founders are executive chairman Wong Lee Keong and deputy executive chairman Lim Poh Khian.

Ogawa traded at a prospective price/earnings ratio of 8.6 times which is reasonable in view of its high growth rate.

Punters taking a quick profit are giving longer-term investors an opportunity to buy the shares and take a bet that this company still has a long way to grow.



Another sell-off



After many years, Mycom Bhd and related company Olympia Industries Bhd finally completed their respective restructuring schemes and were requoted with new business assets on Friday.

However, the image of a chequered past stuck, and their stocks were heavily sold down from their reference prices of RM1.00 a share. Mycom fell 20.5 sen to 79.5 sen while Olympia dropped 16.5 sen to 83.5 sen. It was a cold shoulder rather than a warm welcome.

That is common immediately after a restructuring scheme as a lot of shares are usually issued to creditors who invariably cash out as soon as they can. Both Mycom and Olympia issued shares to creditors, and vendors as payment for new assets. They also made rights issues priced at RM1.00 a share with free warrants.

The two companies are making an effort to revive their fortunes with additional assets, and as it turned out, in the right sectors – property and plantations.

Mycom has a 58% stake in Kenny Heights Developments Sdn Bhd (KHD) which owns 41 acres of land in Mont Kiara, Kuala Lumpur. That would make it one of the biggest landowners in that exclusive location. The balance of 42% of KHD is owned by Olympia.

In addition, Mycom owns 40,000 acres of oil palm plantations in Sabah which has the best soil and yields in the country.

The company also owns the Duta Grand Hyatt Hotel project in the centre of Kuala Lumpur. This was an eyesore to government officials in view of the long suspension of its construction, which did not give a good impression to foreign businessmen and government representatives. The project will soon be revived, according to the company.

Timing is now on its side as record prices for condominiums, offices and hotels in the city will ensure the project's viability, including an option of sale.

There is some overlap of businesses with Olympia which, in addition to that, owns Diriwan Corp Sdn Bhd which is a numbers forecast operator (NFO) in Sabah. That business faces competition from the NFOs that have expanded from the peninsula into that state. Olympia also owns Jupiter Securities Sdn Bhd, a stock brokerage, in Kuala Lumpur.

The sectors that Mycom and Olympia are now in were not designed to suit the current asset reflation or commodity cycle. The acquisitions were proposed a few years ago. For that reason, the assets were bought at prices proposed at that time when property and palm oil prices were much lower.

Hence, preliminary estimates by analysts showed that Mycom's net tangible assets of RM1.19 a share could be worth about RM1.90 on just a revaluation of the Mont Kiara land.



A plus for NSE



Toll collections at PLUS Expressways Bhd are anticipated to rise strongly next year when its highways are scheduled for another increase, which analysts expect would be a toll hike of 10%.

Its second 10% scheduled increase, under its concession and supplementary agreements, took effect on Jan 1, 2005 for a period of three years. The next toll increase will take effect from Jan 1, 2008.

There would then be a surge in free cashflow for PLUS, currently in the region of RM700mil a year. This is expected to increase to over RM1.2bil a year from next year.

Traffic growth was slow on its highways in the last few years but this was due more to higher petrol costs than the earlier toll hikes. A toll increase next year is not expected to reduce traffic volume, especially as the increase is 10% only.

PLUS' traffic volume increased at less than 2% last year but it is understood the growth rate has more than doubled to just below 4% in the first two months this year.

This is attributed to the annual increase in the number of cars, even if there is more competition from the airlines, both Malaysia Airlines and AirAsia, which offer discounted fares.

Motorists will get used to higher toll rates. Lingkaran Trans Kota Holdings Bhd (Litrak), for instance, found its traffic volume was weak in the first two months this year, after a scheduled 60% toll hike from RM1.00 to RM1.60 in the beginning of the year. It is understood traffic volume has stabilised, with a marginal growth in March and April.

With that toll increase, Litrak would have free cashflow of about RM140mil a year, and sources said, a capital repayment of about 50 sen a share could soon be offered to shareholders.