The long-awaited relisting of Osim International is here. On Feb 28, in its present incarnation as V3 Group, an “enlarged” entity, it filed yet another application to list on the Hong Kong stock exchange.
Many market players would remember that back in 2018, V3 had nearly listed. To the disappointment of its syndicate of bankers, the IPO was aborted, with the company citing “intense volatility” in the market then.
Ron Sim, the company’s founder and chairman, is as well-known as the brand he created: Osim. He started as a humble peddler of household knick-knacks at People’s Park, and then became the billionaire owner of a regional lifestyle products empire with no qualms splurging on A-listers such as Gong Li and Andy Lau to endorse ever more luxurious variants of massage chairs.
In a September 2019 Forbes Asia article, Sim said he aborted the IPO a year earlier because “I felt it may not be the best time”. Just as Sim has the knack for marketing, he was, in that aspect, prescient about pulling the IPO plug too. For, not long after, Hong Kong went into a eight-month-long tailspin that took nearly US$600 billion off its total market cap. It was Hong Kong’s steepest correction in seven years — only to be eclipsed by a much deeper retrograde now because of the pandemic.
Before Sim’s dalliance with Hong Kong, Osim was a homegrown market darling. It was already a household name and when it listed on the Singapore Exchange (SGX) back in July 2000, many of its customers also became its shareholders, cheering Sim on.
Over the years, many have stuck with him through thick and thin. For example, in 2003, Osim invested $60 million in what was then called Global Active, which owns the regional franchise for GNC, a US health supplements brand, and which had mixed results for Osim over the years.
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More notably, in 2005, Osim paid $149 million for a 55% share in US specialist retailer Brookstone. Saddled by hefty financing costs plus limpy sales amid the financial crisis, Osim wrote $100 million off this ill-fated venture.
In 2014, Brookstone filed for Chapter 11. Incidentally, that was the year Osim reported its peak earnings of $102 million; and in April that year, its shares hit its all-time high of $2.90. It was even almost en route to becoming a component stock of the Straits Times Index (STI).
However, in 2016, its massage chair division generated revenue of just $342 million — half its 2013 number. Analysts were then predicting a period of consolidation and a cut in dividends.
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That year, Sim, presumably fed up with explaining his numbers every quarter, called the requirement too onerous and took the company private at $1.32 per share, compelling some investors willing to stick with him for another down-cycle to exit, some at a loss.
In any case, amid the ups and downs, investors who stayed with Osim throughout made handsome gains. The company’s SGX IPO in 2000 was priced at 13 times earnings, giving it a market cap of $120 million. When Sim privatised the company in 2016, his offer was priced at 22 times, valuing it at around $1 billion — eight times what it was some 16 years earlier.
Sim’s privatisation bid required a bridging loan from Credit Suisse, which was paid off with US$500 million from KKR in December 2018. In return for an undisclosed stake in V3, Sim was then able to put off the IPO.
Hardly one to sit still, Sim has been expanding over the years. Besides the Osim branded business, he has added other lifestyle and consumer brands to the V3 umbrella. For example, in 2017, he acquired a majority stake in Futuristic, a specialist fittings provider headed by David Low, 2016 winner of the EY Entrepreneur of the Year. There is also TWG, the premium tea purveyor (which was founded in 2007, and not “1837” as marked prominently on its branding — that refers to the year Singapore became a trading post for tea).
So, what do we then make of the current V3 re-birth in Hong Kong? For the nine months ended Sept 30, 2021, V3 reported earnings of $72.7 million, up some 160% y-o-y. Revenue for the same nine-month period hit $332.8 million, up 32.8% y-o-y.
V3 appears to have weathered the 2020 Covid storm well, with Futuristic’s speciality furnishings business riding a postCovid acceleration. Meanwhile, TWG was planting its flag across more locations across the region, whereas Osim sold more blockbuster products.
Assuming the 9MFY2021 numbers are annualised for FY2021, V3, after six years in the post-Osim delisting wilderness, might have matched its peak 2014 numbers, albeit with better margins against a lower topline.
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At its 2014 peak, Osim was awarded a valuation of 28 times earnings on the SGX. Now, it is not a given that V3 will fetch the same valuation in its new home. Consumer plays in Hong Kong tend to trade at multiples in the teens. If it does fetch 28 times, that will give V3 the same size as Osim at its 2014 peak.
Even so, this will put it at around half of Razer, another homegrown company that chose Hong Kong over Singapore for its 2017 IPO. From the offer price of HK$3.88, Razer dropped to as low as HK$1 before a potential joint privatisation offer with help from CVC at HK$2.82 brought it back to around 60% of its IPO price. This despite finally turning a profit by 2021.
The Hong Kong exchange’s total market cap is around 10 times that of SGX’s. To get into the indices, one needs to have a market cap of at least US$10 billion to US$15 billion ($13.6 billion to $20.4 billion), versus $4 billion to $5 billion for the smallest components of the STI.
Will V3 run the risk of being consigned to be a relatively small company (by Hong Kong standards), with a non-Greater China origin but with a considerably China-focused business? Are these traits likely to win V3 more investors’ interest or less?
Incidentally, Singapore has scrapped quarterly reporting (with exceptions) and is a hub for regional consumer companies including those well above $10 billion to $20 billion. They include a few of the STI constituents such as Thai Beverage Public Co and Dairy Farm International. It is a sector whose valuation comparables are higher than Hong Kong’s, both previously and now.
There is also the overall outperformance of STI versus the Hang Seng Index of 37% since March 2020, the start of the pandemic.
It is therefore a puzzle, and a shame, that for Osim’s previous loyal investors, they may not be able to participate in V3’s rebirth with ease locally, whilst at the same time, capital has been flowing from north to south.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award in 2021
Photo: Samual Isaac Chua of The Edge Singapore
