Monday, August 23, 2010

Ogawa World: Investing In Turnaround?

Got the following set of comments:

  • newbie said...
    Can you please give your five pounds worth of what you think about OGAWA?Saw in it's latest quarterly report that it had made a very good improvement in it's profit after tax and has more than forty cents in net cash per share.It also proposed a dividend of 3 sen.Is it time for the company to make a turnaround ala DXN?

First, the briefest look at the recent stock charts of the stock chart, always does help. ( One does not need to be a pro chart reader. )

Ogawa's recent 3 month's stock performance.

How Ogawa has performed since listing.

Needless to say, Ogawa World the stock, had done really poor since listing. It's a shocker!

So what's investing in turnarounds all about?

I made an additional posting just. See Investing In Turnarounds. Do give it a good read. ( I did not want to include in this posting because it will make end up making this posting ultra long. :P )

Ogawa World was listed on April 2007. It made a whopping 40 sen or 40% premium! IPO price was 1.00 and the listing helped Ogawa World raised some 31.9 million.

Here's a good pre-IPO article for reading reference: Ogawa World aims for double-digit growth and this one is how Ogawa fared on listing: Ogawa makes strong debut on Bursa.

It's pre-listing forecast..

  • 28-03-2007: Ogawa forecasts net profit of RM16m
    By Ashwin Raman

    Main Board-bound Ogawa World Bhd expects to post a net profit of RM16 million for the financial year ending June 30, 2007, an increase of 37% from the previous year.

    Its executive director Louis Chong said revenue was expected to grow 19% to RM162 million that would enable the health and wellness equipment maker to maintain its market share of over 45%...................

So how did Ogawa fared as a company since then? (yaya.. this is a stupid question because needless to say, Ogawa's performance should be poor since it's now 'branded' as a turnaround possibility! :P )

It's not only poor but it's a shocker! :P

Remember Ogawa World was listed on April 2007. Its 2007 Q4 earnings was reported on Aug 2007. Ok, it's a very small deal that Ogawa failed to live up to its IPO promised numbers. It's no biggie, really. Ogawa did 14.447 mil. It promised 16 mil. Small miss. Nothing like the horrendous miss by big companies like Titan Chemicals or AirAsia.

However... on 28th November 2007, it reported it's first loss!!! ( see Quarterly rpt on consolidated results for the financial period ended 30/9/2007 ).

Ok the loss was small but it was a warning sign!

And many would be disgusted because Ogawa World was just listed in April 2007. Go figure! Listed April 2007, November 2007 started reporting losses! Where on earth is the quality control of the IPO listing? Why so poor?

And the disgusted got more disgusted! Six later, in May 2008, Ogawa reported a loss of 2 million!!!! ( Quarterly rpt on consolidated results for the financial period ended 31/3/2008 )

And I guess one can understand why Ogawa the stock, fared so poorly!

LOL! I know.. I know.. I know... many reckons I love to tell stories! LOL!

Guilty.

Well, the reasoning is not that difficult and unreasonable because if I do not understand how the company fared so poorly, how could I ever understand if the company has a potential to be a turnaround success? Will it be as successful as say YTL Cement turnaround story back in early 2002?

Here's Ogawa's 'excuse' for its lousy fy 2008.

  • Revenue for the Group has increased from RM30.17 million in the immediate preceding quarter to RM38.36 million in this quarter. The Group registered a loss before taxation of RM7.82 million as compared to loss before tax of RM2.16 million in the immediate preceding quarter as a result of lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

And here's Ogawa's said in its fy 2009 earnings.

  • The Group registered a profit before tax of RM3.72 million for the current quarter under review as compared to loss before tax of RM7.82 million for the corresponding period of the preceding financial year due to higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered.

Ah... fy 2009 Q4, Ogawa reported a profit of rm 3.72 million. We need to see Q2 notes for reference because for that quarter Ogawa reported 10 million in losses!

  • The Group registered a loss before tax of RM10.75 million for the current quarter under review as compared to profit before tax of RM1.14 million for the corresponding period of the preceding financial year due to lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

So how?

What was the driving factor of the losses?

For fy 2008, Ogawa cited lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

For first half of fy 2009, Ogawa cited lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

And the second half of fy 2009, Ogawa said higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered was driving the turnaround! (yea.. turnaround started way then)

And this is the table which highlights the porfits and losses...


Yes, Ogawa has stopped making losses for 5 consecutive quarters already. ( some critics would say that this streak includes two quarters (10 Q1 and 10 Q2) of extremely smallish profits.

And here's Ogawa's balance sheet, showing the cash and debts.



Ah.. one can see the receivables and inventory been written down in its FY 2009.

Cash... it starts off with 38.348 million. Remember some 31.9 was raised from its IPO and... apparently some 15 million was allocated for land and building acquisition. This was unitised and the 15 million had been re-allocated as 'working capital'.

The company said the following in its 10 Q4 notes.
  • The Group registered a profit before tax of RM5.18 million for the current quarter under review as compared to profit before tax of RM3.72 million for the corresponding quarter of the preceding financial year. The improved performance is due mainly to higher sales achievement, higher gross profit margin and lower provisions for doubtful debts.

So Ogawa is now saying it's getting higher sales. Higher profit margins.

But sadly, Ogawa World is not stating which product is the driving factor behind the better sales in its earnings notes.

Here's Ogawa World's products: http://www.ogawaworld.net/ourproducts/relaxation/fujiiryoki_sks3000/fujiEC3000.php

And some recent news articles which might gives the investor some clues...

How?

Are we able to understand more on what's driving the current turnaround?

Is the current turnaround 'sustainable'?

Or are we seeing the turnaround but we somehow do not understand the business concept and its business products?

And ultimately, would one make the comparison in investing choices because one can easily invest in the more famous massage chair, Osim. ( Here's a quick look at Osim's numbers: here )

And last but not least, during the slowdown and bad times, how do we evaluate the 'noises' or comments from the company? Yes, how do we evaluate the management conduct so far? Have they handled the company well during the bad times?

And last but not least, the ESOS issue is worth noting. It's huge and dilutive. A 15% ESOS was proposed just last month! (yeah.. the cynics would say... what la! This company starts making back profit and the company fast hand, fast leg announces huge ESOS! See OGAWA WORLD BERHAD (“OWB” or “COMPANY”) PROPOSED ESTABLISHMENT OF AN EXECUTIVES’ SHARE OPTION SCHEME (“ESOS” OR “SCHEME”) OF UP TO FIFTEEN PERCENT (15%) OF THE ISSUED AND PAID-UP SHARE CAPITAL OF OWB (“PROPOSED ESOS”) )

Yeah.. 'all the Directors of OWB are eligible to participate in the Proposed ESO' and currently, Ogawa World has 120 million shares and the ESOS 'could' create some 18 million new shares.

ps: I have no idea if you can lose money in the stock. Please do consult your neighbourhood sotong!

9 comments:

newbie said...

Hi,Moola,
Don't care what my neighborhood sotong will say.Just want to tell you that the analysis that you gave have been valuable.Based on what you have written,is it fair to say that the company has cash of more than forty cents per share in hand?And it made more than five sen per share in the last quarter.So is it fair to say that if it is capable of maintaining it's current profitability(a big IF-lah!!),then one is actually paying next to nothing if buying at the current price?Thanks for the effort put in to compile all the data to illustrate your point.

Wiun Kiat said...

Hi Moola,

Is always a pleasure to read your insightful financial analysis of company/business.

Would be obliged for your guidance on some of my thoughts (as a short-term trader) on Ogawa.
(Disclaimer: I do own some Ogawa stocks.)

1. Agreed that it is uncertain that whether the turnaround can sustain in the longer term as this depends on its competitive edge & biz strategy (which are largely tied to the mgmt quality).

2. The current valuation could however have already priced in most uncertainties & risks. Based on RM0.44/share, the RM53m market cap represent 6x current P/E and <1x current EV/EBITDA.

3. Its RM49m net cash indicates limited balance sheet risk. Its RM 3sen dividend could provide some support to share price (implied current dividend yield of 7%).

4. Industry Landscape - OSIM share price just recently hit its 52-week high at >S$1.0, more than 10x of its 2009 low of <S$0.10. It is currently trading at trailing 17x P/E. The retail industry in Malaysia and China could however be very very COMPETITIVE with low entry barrier.
(Note: OSIM's business out-performance could pressure on Ogawa's business but it could also mean the broad retail industry is recovering. The two companies' are a bit similar but not entirely comparable in terms of size & markets though.)

Moolah said...

Wiun Kiat: Sorry I lack the desire and motivation and the interest to talk what a stock would do or not do in the market.

Moolah said...

REMINDER:

Hey THIS BLOG...

solomon said...

To keep or not to keep?? My old dad always says if you use the brand for some times and going to re-use, high chances that it is good for a keep.

Just a thought.

Moolah said...

Old things no chuck how to get the new and more canggih stuff?

:P

solomon said...

In a way YES to you question, it will increase revenue with shorter product life cycle and CANGGIH goods. Better to judge on the product needs and the company competitiveness in the market kua??

It also expalinsthat's why the cleanup of my dad's storeroom by mum over the weekend....maybe I will be like that soon...old already mah...Moo u never grow one leh??

Gamelion said...

WARNING u can lose your ass betting
4 a turnaround. Why risk 4 something
that r so uncertain & need the near
perfect timing of entry?

Moolah said...

Gamelion: No one commented on your comments. :(

What you have said is so true.

Spotting a turnaround, investing in the turnaround and profiting from the turnaround, is exteremly difficult. The biggest stumbling block is usually the sustainability of the turnaround. :/