OSIM International

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The Straits Times
www.straitstimes.com
Published on Aug 04, 2012
Osim app targets younger buyers
iPhone, iPad feature tailors massage sequences to suit different users

OSIM International, Asia's biggest maker of massage chairs, is tapping on Apple's iPhone to help boost sales among younger buyers.

The application (app) will allow users of its latest chairs, which cost $5,588 each, to download new massage programmes tailored to individual needs, said Osim's chief executive officer Ron Sim in an interview.

More massage sequences, such as those for tennis or golf players, may be rolled out and downloaded to existing chairs, he said.

"That means the programmes in the future will be 'infinity'," Mr Sim, 53, said on Thursday. "This business is about well-being and we need to continue to innovate products to innovate demand."

Osim, which sells a variety of massage and so-called well-being products in 26 countries, is banking on new technologies to boost sales in the key markets of China, Hong Kong, Taiwan and Singapore. The iPhone strategy is crucial as Osim expands sales of its products, including new chairs called uDivine App, among customers in their 20s and 30s, Mr Sim said.

The iPhone feature, which connects wirelessly to the chair via Bluetooth, also works on the iPad, he said. A similar product may eventually be added for phones using other mobile technologies, said Mr Sim, who has run his company for more than three decades.

"It's part of their constant drive to innovate products," said Mr James Koh, an analyst at Maybank Kim Eng Holdings, who rates the stock "outperform".

"For people who have not bought a uDivine chair, that is possibly a very good reason to buy one now."

Osim's massage chairs, which start at $2,000, make up 50 per cent of its sales and may rise to 60 per cent of revenue in three to five years, said Mr Sim, who was named best CEO for the mid-cap category at the Singapore Corporate Awards last month.

To reach younger buyers, Osim is also offering instalment payment plans, Mr Sim said, adding that "a two-hour spa session costs more than an instalment".

Osim last week reported a 20 per cent rise in second-quarter profit to $22.5 million. Sales rose 12 per cent to $155 million.
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Osim issued the convertible bond of 120 millions.

Does the investors for the bond have the option to either convert to share or have their invested money after 5 yrs?

Hope someone to enlighten me.

Thanks.

It is inside its annual report

Convertible bonds
On 5 July 2011, the Company issued 120 million 2.75% convertible bonds (the “Bonds”) at nominal value of $1 per bond, which are listed in the Singapore Exchange Securities Trading Limited (“SGX”). The contractual interest rate on the Bonds is 2.75% per annum, but excluding the equity conversion option,the effective interest rate is 4.39% per annum. The Bonds mature 5 years from the issue date at the principal amount together with the unpaid interest(if any) unless converted into the Company’s ordinary shares at the holder’s option at the rate of $2.025 per share. The holder of each convertible bond has the right to require the Company to redeem the Bond on 5 July 2014. The convertible bonds are callable at the option of the Company at the principal amount together with the interest accrued any time after 5 July 2014, subject to the satisfaction of certain conditions. Any bondholder may request that the Company redeems all of the Bonds in the event that the Company’s shares ceased to be listed or admitted to trading on SGX.
The convertible bonds comprise a financial liability at amortised cost and an equity component. The equity component of the Bonds amounted to
$3,773,000. At 31 December

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What I don't get is the effective interest rate at 4.39%. How does contractual interest rate of 2.75% related to /or get converted to 4.39%?

Osim P/B is high for me

Can it be that if not converted to share the interest rate is 2.75% and if converted, the effective interest rate is 4.39%?

Thanks for your pointer.

BeDisciplined Wrote:What I don't get is the effective interest rate at 4.39%. How does contractual interest rate of 2.75% related to /or get converted to 4.39%?

The convertible bond can be thought of as a combination of 2 separate instruments:

1. Ordinary bonds paying a coupon; and
2. Warrants with a strike price and expiry date

The bonds' stated interest rate is 2.75%, but excluding the conversion option the rate is 4.39%.

That means that if the warrants are separated from the bonds, the bonds' principal value is in fact only 2.75%/4.39% = 62.64% of par.

In other words, for each $100 of CB paid by the original subscribers, $62.64 was for a bond paying $2.75 in interest, and $37.36 was for a warrant with a strike price of $2.025 and a 5-year life.

Thus, the coupon based on $100 is 2.75%, but based on $62.64 it is 4.39%.

This of course implies that the warrant was pretty expensive. But given the long life (5 years) and the high historical volatility of Osim shares (they fell to 5cts during the crisis), perhaps it was justified at the time the CBs were issued.

Sorry for being ignorance.

I would like to ask again. If I have the convertible bond, can I choose not to convert?

(05-08-2012, 10:52 PM)setan Wrote: Sorry for being ignorance.

I would like to ask again. If I have the convertible bond, can I choose not to convert?

I recaptured a section of the CB here. Please see the highlighted part, should be self-explainable.

"The Bonds mature 5 years from the issue date at the principal amount together with the unpaid interest(if any) unless converted into the Company’s ordinary shares at the holder’s option at the rate of $2.025 per share. The holder of each convertible bond has the right to require the Company to redeem the Bond on 5 July 2014."

Thank you for your explanation.

Osim it took a $77.31 mil write-off on its investment in Brookstone in FY2008. Their investment in Brookstone in 2005 was $145.3 mil. How come they didn't write-off the whole $145.3 mil but only $77.3 mil? Where did the remaining money go to?

Also, Osim has 55% of Brookstone and it has been ring-fenced. How come Osim is reporting the investment as an equity stake instead of a consolidation since more than 50% of Brookstone is owned by Osim?

(24-11-2012, 03:59 PM)FFNow Wrote: Osim it took a $77.31 mil write-off on its investment in Brookstone in FY2008. Their investment in Brookstone in 2005 was $145.3 mil. How come they didn't write-off the whole $145.3 mil but only $77.3 mil? Where did the remaining money go to?

Also, Osim has 55% of Brookstone and it has been ring-fenced. How come Osim is reporting the investment as an equity stake instead of a consolidation since more than 50% of Brookstone is owned by Osim?

Firstly, by the end of 2007, they are only left with $127m after translational losses. In 2008, they suffered from losses of $130m from brookstone which results in a write-off of Brookstone. Hence, even after 77m write-off, the company still have to recognised the remaining losses from its investment in associate. Under accounting rule, profit and losses from associate are added to the equity and investment in associate in the balance sheet. Dividend received from associates are deducted from investment in associate and added to cash.

Secondly, they recognise it as a JV as from what I understand it is because they do not have the controlling right. This is one of the lessons that Ron Sim learnt though I forget why is it that they do not have controlling right despite the 55%. Something to do with the agreement. another lesson he had learnt was the difference in accounting standard where bond payment to prefeence shareholder is recognised as expense in Singapore FRS. (They did a leveraged buyout)

For associate and JV accounting, once the losses exceed the original investment, further losses are no longer recognised. Neither should one expect Brookstone to turnaround and deliver profit for OSIM given that OSIm still have $57m unrecognised losses from its brookstone investment in which future profits need to exceed $57m before it can be recognised in the income statement.

Does this make sense? It does given that OSIM is free from any burden even if Brookstone declares bankruptcy and have to pay off its debt. So all that the company have lost is the orginal $145 million investment made. Positive surprise will only come from dividend payment from Brookstone to Osim

(not vested)