OGAWA WORLD BHD
Primary Symbol & Exchange:
5128 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 20/8/2010 RM: 0.44
Mkt Cap RM’m : 52.80
Shares (m): 120.00
Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Trading
Fox Capital: Healthcare equipment
Executive Chairman: Wong Lee Keong
Managing Director: Wong Lee Keong
KNOWN MAJOR SHAREHOLDER(S) (as at 30/06/2009)
Great Genesis Sdn Bhd* 51.0%
* Deemed interested by the Chairman,Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). In addition,Wong Lee Keong also hold direct interest of 0.88%
Contact Info
No. 22 Jalan Anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam, Selangor
Phone: 603-51214286
Fax: 603-51214386
Corporate website: http://www.ogawaworld.net/
BACKGROUND
Ogawa World (Ogawa) is a retailer of health and wellness equipment products, with a distribution network in eight countries in Asia Pacific. Products are marketed under in-house brands of “Ogawa” and “Deki”. Listed on the Main Board of Bursa Malaysia in April 2007, Ogawa is 51% owned by Great Genesis, which in turn is owned by Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). Cofounders Wong Lee Keong and Lim Poh Khian currently act as the Executive Chairman and Deputy Executive Chairman of Ogawa while the remaining four shareholders of Great Genesis also sit on the Board of Ogawa as Executive Directors.
Ogawa operates retail outlets in four proprietary markets (Malaysia, Singapore, Hong Kong and China) through 100%-owned subsidiaries. Ogawa does not own any equity interest in the operations of its four distributor markets (Australia, Indonesia, Thailand and Vietnam) – these markets are instead served by sole distributors appointed by Ogawa.
Ogawa’s history can be traced back to 1986 when co-founders Wong Lee Keong and Lim Poh Khian began trading household and electrical products such as water purifiers and kitchenware in Malaysia. Diversification into the health and wellness equipment market came in 1996 where the initial focus was on retailing a range of small massaging equipment and water filters.
Efforts were then put in place to increase product range and create market awareness for health and wellness equipment products – which was a relatively new concept in Malaysia. The “Ogawa” brand was developed in 1996 after which extensive marketing went into creating awareness of the brand name. In 2006, the “Deki” brand was developed for the lower-priced products to penetrate into new and under-served consumer markets including lower income customers and young executives.
Ogawa’s products are conceptualized in-house, helped by latest market trends and customer and supplier feedback. Designs and specifications are then submitted to external contract manufacturers – initially for a prototype production, and later for replication manufacturing. Some 5-10 new products, features and designs are introduced each year and to-date, Ogawa has obtained approvals for over 19 trademarks and has submitted applications for the registration over 20 additional trademarks.
Products sold can be divided into five categories, namely:
i) relaxation (products such as massage chairs);
ii) therapeutic (products such as foot massagers);
iii) fitness (products such slimming equipment);
iv) diagnostic (products such as blood pressure monitors and
v) hygiene (products such as air purifiers).
Massage chair products are Ogawa’s top selling item and make up 60%-70% of revenue. Foot massage products are the second top selling product and make up 15%-20% of revenue while portable massages are the third largest product sold (4%-5% of revenue).
In 2002, Ogawa expanded into regional markets, starting with Singapore and Indonesia. Ogawa has since built up a presence in five other regional countries, including most recently in Thailand, where operations started in January 2008. The distribution and retailing operations in these eight markets are conducted through two business models – either through proprietary markets, where the retail or POS (point of sales) outlet is owned and operated by Ogawa (Malaysia, China, Hong Kong and Singapore) or through distributor markets where sole distributors are appointed (Australia, Indonesia, Thailand and Vietnam).
Market Penetration Markets Year Penetrated
Peninsular Malaysia…… 1996
East Malaysia…………… 2001
Singapore and Indonesia. 2002
Australia…………………. 2003
China…………………….. 2005
Hong Kong and Vietnam. 2006
Thailand…………………..2008
Saudi Arabia……………..2009
Source: Company data
Contract manufacturing of Ogawa’s products is done in China, and here, Ogawa works with five to seven key suppliers. Ogawa pays for the contract manufacturing in US$ and the cost of the merchandise makes up an estimated 40%-45% of revenue. For the proprietary markets, rental makes up the second largest cost component, at 12%-15% of revenue while staff cost is the third largest component, at 10%-12% of revenue for an average sized outlet of 800 sq. ft. Aside from the initial training and technical services provided, there are generally no costs associated with the distributor markets, where Ogawa instead receives an average 15% margin of the sales to the distributors.
The health and wellness equipment market in Malaysia is dominated by two larger players – Ogawa, with the higher 36% market penetration share and Osim International, with a 21% market penetration share. Other smaller players include OTO Bodycare, Panasonic Malaysia and Gintell. The smaller players generally have a more limited range of products, with a smaller number of model types and in some cases, are not involved in product design and development.
In Ogawa’s overseas markets, competition comes primarily from Osim International and other smaller players – both local and international. Ogawa is being positioned as an international brand in these markets and strategic A&P efforts are in place to help this development. A&P activities center around both thematic advertising for longer term brand awareness and tactical promotions which encourage consumers to buy (such as launching contests with attractive prices).
Geographically, the Malaysian market remains the largest revenue contributor with RM 85.7 million, accounting for 66.7% of Group revenue as at 30/6/2009 but overseas business had increased to 33.3% at RM 42.8 million compared to 28.0% in the last financial year ended 30/6/2008.
During the financial year of 30/6/2009, Ogawa have successfully penetrated into Saudi Arabia with the appointment of a distributor. Today, Ogawa’s products can be found in 10 outlets in Jeddah and Riyadh. The distributor in Thailand had however ceased operations in January 2009. Therefore, Ogawa are now in 9 countries namely Malaysia, Singapore, China, Hong Kong, Australia, Indonesia, Vietnam, Myanmar and Saudi Arabia with a total of 150 outlets.
WHY WE FEEL OGAWA IS UNDERVALUED?
1) Ogawa is very financially strong with improving net cash holdings as follows:-
FYE…………….Net cash (Net cash/share)
30/6/2008…….. RM32.4m (27.0 sen/share)
30/6/2009…….. RM42.4m (35.4 sen/share)
30/6/2010…….. RM48.4m (40.3 sen/share)
Based on last traded price of 44.0 sen/share as at 20/8/2010, the market is only assigning value of only 4 sen/share for Ogawa’s business!
2) Ogawa has managed to make a convincing turnaround as follows:-
FYE…...…….……Net EPS
30/6/2005……..7.75 sen
30/6/2006……..9.56 sen
30/6/2007……..18.46 sen
30/6/2008……..-6.98 sen
30/6/2009……..-10.36 sen
30/6/2010……..6.91 sen
3) Ogawa’s has registered its best quarterly earnings for FYE 30/6/2010 since listing as follows:-
1Q2010…0.07 sen
2Q2010…0.31 sen
3Q2010…1.43 sen
4Q2010…5.10 sen
--------------------
Total.…….6.91 sen
--------------------
4) If Ogawa is able to maintain its earning performance, Ogawa is currently, extremely, undervalued!
5) We remain positive on the group’s earnings outlook, based on its revenue growth, which indicate recovery from recession. We see Ogawa well positioned to benefit from improving retail market conditions as the world continues its recovery from recession. Ogawa’s established presence in its home market of Malaysia indicates steady domestic revenues, while its export efforts mean that overseas markets, such as China and Singapore, would be longer term growth drivers.
6) Trading volume for Ogawa have surged significantly last week for this normally thinly traded counter with no even no trading for certain days:-
16/8/2010 1,295,000
17/8/2010 3,130,400
18/8/2010 15,151,800
19/8/2010 1,530,500
20/8/2010 3,883,300
Primary Symbol & Exchange:
5128 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 20/8/2010 RM: 0.44
Mkt Cap RM’m : 52.80
Shares (m): 120.00
Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Trading
Fox Capital: Healthcare equipment
Executive Chairman: Wong Lee Keong
Managing Director: Wong Lee Keong
KNOWN MAJOR SHAREHOLDER(S) (as at 30/06/2009)
Great Genesis Sdn Bhd* 51.0%
* Deemed interested by the Chairman,Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). In addition,Wong Lee Keong also hold direct interest of 0.88%
Contact Info
No. 22 Jalan Anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam, Selangor
Phone: 603-51214286
Fax: 603-51214386
Corporate website: http://www.ogawaworld.net/
BACKGROUND
Ogawa World (Ogawa) is a retailer of health and wellness equipment products, with a distribution network in eight countries in Asia Pacific. Products are marketed under in-house brands of “Ogawa” and “Deki”. Listed on the Main Board of Bursa Malaysia in April 2007, Ogawa is 51% owned by Great Genesis, which in turn is owned by Wong Lee Keong (32.0%), Lim Poh Khian (27.8%), Lim Mee Ling (12.1%), Cheah Yew Kong (12.1%), Chong Swee Main (8.9%) and Lim Wai Heng (7.2%). Cofounders Wong Lee Keong and Lim Poh Khian currently act as the Executive Chairman and Deputy Executive Chairman of Ogawa while the remaining four shareholders of Great Genesis also sit on the Board of Ogawa as Executive Directors.
Ogawa operates retail outlets in four proprietary markets (Malaysia, Singapore, Hong Kong and China) through 100%-owned subsidiaries. Ogawa does not own any equity interest in the operations of its four distributor markets (Australia, Indonesia, Thailand and Vietnam) – these markets are instead served by sole distributors appointed by Ogawa.
Ogawa’s history can be traced back to 1986 when co-founders Wong Lee Keong and Lim Poh Khian began trading household and electrical products such as water purifiers and kitchenware in Malaysia. Diversification into the health and wellness equipment market came in 1996 where the initial focus was on retailing a range of small massaging equipment and water filters.
Efforts were then put in place to increase product range and create market awareness for health and wellness equipment products – which was a relatively new concept in Malaysia. The “Ogawa” brand was developed in 1996 after which extensive marketing went into creating awareness of the brand name. In 2006, the “Deki” brand was developed for the lower-priced products to penetrate into new and under-served consumer markets including lower income customers and young executives.
Ogawa’s products are conceptualized in-house, helped by latest market trends and customer and supplier feedback. Designs and specifications are then submitted to external contract manufacturers – initially for a prototype production, and later for replication manufacturing. Some 5-10 new products, features and designs are introduced each year and to-date, Ogawa has obtained approvals for over 19 trademarks and has submitted applications for the registration over 20 additional trademarks.
Products sold can be divided into five categories, namely:
i) relaxation (products such as massage chairs);
ii) therapeutic (products such as foot massagers);
iii) fitness (products such slimming equipment);
iv) diagnostic (products such as blood pressure monitors and
v) hygiene (products such as air purifiers).
Massage chair products are Ogawa’s top selling item and make up 60%-70% of revenue. Foot massage products are the second top selling product and make up 15%-20% of revenue while portable massages are the third largest product sold (4%-5% of revenue).
In 2002, Ogawa expanded into regional markets, starting with Singapore and Indonesia. Ogawa has since built up a presence in five other regional countries, including most recently in Thailand, where operations started in January 2008. The distribution and retailing operations in these eight markets are conducted through two business models – either through proprietary markets, where the retail or POS (point of sales) outlet is owned and operated by Ogawa (Malaysia, China, Hong Kong and Singapore) or through distributor markets where sole distributors are appointed (Australia, Indonesia, Thailand and Vietnam).
Market Penetration Markets Year Penetrated
Peninsular Malaysia…… 1996
East Malaysia…………… 2001
Singapore and Indonesia. 2002
Australia…………………. 2003
China…………………….. 2005
Hong Kong and Vietnam. 2006
Thailand…………………..2008
Saudi Arabia……………..2009
Source: Company data
Contract manufacturing of Ogawa’s products is done in China, and here, Ogawa works with five to seven key suppliers. Ogawa pays for the contract manufacturing in US$ and the cost of the merchandise makes up an estimated 40%-45% of revenue. For the proprietary markets, rental makes up the second largest cost component, at 12%-15% of revenue while staff cost is the third largest component, at 10%-12% of revenue for an average sized outlet of 800 sq. ft. Aside from the initial training and technical services provided, there are generally no costs associated with the distributor markets, where Ogawa instead receives an average 15% margin of the sales to the distributors.
The health and wellness equipment market in Malaysia is dominated by two larger players – Ogawa, with the higher 36% market penetration share and Osim International, with a 21% market penetration share. Other smaller players include OTO Bodycare, Panasonic Malaysia and Gintell. The smaller players generally have a more limited range of products, with a smaller number of model types and in some cases, are not involved in product design and development.
In Ogawa’s overseas markets, competition comes primarily from Osim International and other smaller players – both local and international. Ogawa is being positioned as an international brand in these markets and strategic A&P efforts are in place to help this development. A&P activities center around both thematic advertising for longer term brand awareness and tactical promotions which encourage consumers to buy (such as launching contests with attractive prices).
Geographically, the Malaysian market remains the largest revenue contributor with RM 85.7 million, accounting for 66.7% of Group revenue as at 30/6/2009 but overseas business had increased to 33.3% at RM 42.8 million compared to 28.0% in the last financial year ended 30/6/2008.
During the financial year of 30/6/2009, Ogawa have successfully penetrated into Saudi Arabia with the appointment of a distributor. Today, Ogawa’s products can be found in 10 outlets in Jeddah and Riyadh. The distributor in Thailand had however ceased operations in January 2009. Therefore, Ogawa are now in 9 countries namely Malaysia, Singapore, China, Hong Kong, Australia, Indonesia, Vietnam, Myanmar and Saudi Arabia with a total of 150 outlets.
WHY WE FEEL OGAWA IS UNDERVALUED?
1) Ogawa is very financially strong with improving net cash holdings as follows:-
FYE…………….Net cash (Net cash/share)
30/6/2008…….. RM32.4m (27.0 sen/share)
30/6/2009…….. RM42.4m (35.4 sen/share)
30/6/2010…….. RM48.4m (40.3 sen/share)
Based on last traded price of 44.0 sen/share as at 20/8/2010, the market is only assigning value of only 4 sen/share for Ogawa’s business!
2) Ogawa has managed to make a convincing turnaround as follows:-
FYE…...…….……Net EPS
30/6/2005……..7.75 sen
30/6/2006……..9.56 sen
30/6/2007……..18.46 sen
30/6/2008……..-6.98 sen
30/6/2009……..-10.36 sen
30/6/2010……..6.91 sen
3) Ogawa’s has registered its best quarterly earnings for FYE 30/6/2010 since listing as follows:-
1Q2010…0.07 sen
2Q2010…0.31 sen
3Q2010…1.43 sen
4Q2010…5.10 sen
--------------------
Total.…….6.91 sen
--------------------
4) If Ogawa is able to maintain its earning performance, Ogawa is currently, extremely, undervalued!
5) We remain positive on the group’s earnings outlook, based on its revenue growth, which indicate recovery from recession. We see Ogawa well positioned to benefit from improving retail market conditions as the world continues its recovery from recession. Ogawa’s established presence in its home market of Malaysia indicates steady domestic revenues, while its export efforts mean that overseas markets, such as China and Singapore, would be longer term growth drivers.
6) Trading volume for Ogawa have surged significantly last week for this normally thinly traded counter with no even no trading for certain days:-
16/8/2010 1,295,000
17/8/2010 3,130,400
18/8/2010 15,151,800
19/8/2010 1,530,500
20/8/2010 3,883,300
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