Ossia International Limited

[pianist]

Did the gohs just earlier announced full yr results with a 'suppressing' low dividends, and then this piece of go offer news?
The market price already trending at 0.151, somewhat oblivious to the lower offer price

[ghchua]

Did the gohs just earlier announced full yr results with a 'suppressing' low dividends, and then this piece of go offer news?
The market price already trending at 0.151, somewhat oblivious to the lower offer price

Hi pianist,

To be fair, the latest FY result had shown a decrease in profits and also lesser dividend received from associated company. So, it is a combination of some of these factors that resulted in a lower dividend being declared rather than anything to do with the GO.

As for the market price, the Joint Offerors had already said that the dividend of 0.7c per share being proposed will not be deducted from the offer price, if the dividend is approved by shareholders at the AGM. So, the market had taken into consideration of the dividend amount on top of the offer price. Nothing unusual about that to me too.

[dydx]

Relevant questions:
1) Since the Goh brothers already hold a 76.56% combined interest, why an unconditional offer, and not a conditional offer subject to min. acceptance hitting 90%?
2) If the offer at $0.145/share is inadequate, would the Goh brothers raise it later to increase their chances to secure more acceptances?
3) Why the Goh brothers choose not to have a financial advisor in their offer?
4) What is the main reason or driver behind the Goh brothers wanting to raise their combined interest via a GO, instead of they individually buying more shares from the open market?

[ghchua]

Hi dydx,

My responses to your questions:

1. While they wish to compulsory acquire the remaining minorities and delist the company, they might want to get as much shares as possible, in case they could not achieve their intentions this time round. There is always a next time. Same for OCBC. Their offer for Great Eastern Holdings is unconditional as well, although they hold more than 88% of the company at the time of the offer announcement.

2. That will depend on how desperate they are in achieving their intentions, the acceptance level going forward and also the opinion of the IFA on the offer. The offer price is not final yet, so things can change.

3. I am not sure about that, maybe to save costs?

4. Shares have low trading liquidity, so this offer is a good chance for them to raise their stake in the company, hoping that big blocks of minorities will tender their shares.

[weijian]

Unconditional GO at $0.145/share from the Goh brothers...
https://links.sgx.com/FileOpen/Offer%20A...eID=806465

Hi dydx,

I am afraid that the offer price is not good enough. Ossia is only valued at around 5.6x PE and 0.66x PB with this offer and the company being in a comfortable net cash position with little debt.

Investors should hold out and wait, since the offeror did not say this is the final offer. Let's see what the IFA has to say.

As per FY24 financial statements, the book is made up of ~55% associate (19.8% effective stake in Pertama Holdings - retailer of consumer electronics and home furnishings in Spore/Msia), 25% inventory, 17.5% cash and 2.5% net receivables/payables.

Since it does not have negative receivables/payables, it must have a substantial distribution business compared to its retail business.

The retail inventory (clothing/accessories) is at lower of cost/net realizable value, and has a relatively slow turnaround of 340days (meaning it takes 340days to sell at wholesale and retail). Ossia's has GPM of ~60%, meaning the blended markup is ~100%. My guess is that they could probably be largely liquidated if sold at 50% discount, which means that the inventory might be worth what it is on the BS.

As for Pertama Holdings, its stake is equity accounted for. As it had been profitable, it has to be worth more than its accounting value.

Just a quick back of envelope qualitative review shows that the offer is pretty undervaluing the company even from a liquidation scenario.

[money]

Unconditional GO at $0.145/share from the Goh brothers...
https://links.sgx.com/FileOpen/Offer%20A...eID=806465

Hi dydx,

I am afraid that the offer price is not good enough. Ossia is only valued at around 5.6x PE and 0.66x PB with this offer and the company being in a comfortable net cash position with little debt.

Investors should hold out and wait, since the offeror did not say this is the final offer. Let's see what the IFA has to say.

As per FY24 financial statements, the book is made up of ~55% associate (19.8% effective stake in Pertama Holdings - retailer of consumer electronics and home furnishings in Spore/Msia), 25% inventory, 17.5% cash and 2.5% net receivables/payables.

Since it does not have negative receivables/payables, it must have a substantial distribution business compared to its retail business.

The retail inventory (clothing/accessories) is at lower of cost/net realizable value, and has a relatively slow turnaround of 340days (meaning it takes 340days to sell at wholesale and retail). Ossia's has GPM of ~60%, meaning the blended markup is ~100%. My guess is that they could probably be largely liquidated if sold at 50% discount, which means that the inventory might be worth what it is on the BS.

As for Pertama Holdings, its stake is equity accounted for. As it had been profitable, it has to be worth more than its accounting value.

Just a quick back of envelope qualitative review shows that the offer is pretty undervaluing the company even from a liquidation scenario.

The offeree circular is released last night. i took a quick look. It turns out to say that the opinion is fair and reasonable. i thought it is ridiculous.

At of mar 2024, the company has net cash of at least 9.5m (cash 11.3m, debt 1.77m). 

Although its taiwan business is PROFITABLE, i will just liquidate all the inventories and trade receivables (17.7m) to pay down all the liabilities (6.8m) to simplify matters. Value the taiwan business at zero.

Let's just focus on the 19.8% effective stake in Pertama Holdings. The group's share of profit for 2024 is 5,065k (2023:7,883k).

Even if i take a miserable pe multiple of 8, and i use the lower figure of 5,065k, i get a valuation of 40,520k or simply 40m.

Add this to the net cash of 9.5m, i get 49.5m. With 252m shares outstanding, this works out to 19.6 cents per share (compared to the 15.2 cents on offer if you include the dividend). 

How is this offer fair and reasonable?

How CAN this offer be FAIR and REASONABLE? Come on lah!!!

[money]

A general comment on delisting. Sometimes i do wonder if fees is paid to the IFA, how independent can the IFA be? (i have heard warren buffett saying 'never ask a barber if you need a haircut')

Another issue is who gets to decide on which IFA to choose, this is another matter of great importance to the minority shareholder but never discussed. It will be nice if SGX can appoint the IFA instead.

[ghchua]

Hi money,

The IFA's estimated value for Ossia is between 13.7c to 15.3c. So. the offer price of 14.5c (plus 0.7c first and final dividend if approved at AGM) is within the range. So, it is fair and reasonable, according to them.

But what the IFA is using to derive that range will answer your above questions why their valuation range is much less than your computed valuation. Please refer to page A-32 of the letter from IFA.

Firstly, for the Taiwan distribution business, the IFA is using median trading multiples of comparable companies, i.e. 0.4x P/NAV and 2.7x PER. You are using liquidation value, which I assume is 1x P/NAV. So, the IFA has a lower valuation than yours.

Second, for the associate, the IFA is using first quartile trading multiples of comparable companies i.e. 0.7x P/NAV and 9.5x PER with a "floor" value of around 1.1x book value of the associate, coupled with an approximately 30% discount to it. Wow! So complicated. You have a valuation of $40m, but I think with the 30% discount, the IFA will have a lower valuation than yours.

Using sum of the parts (i.e. SOP) of the above, the minimum and maximum estimated value of the shares is being derived.

Hope that the above clarifies.

[money]

Hi money,

The IFA's estimated value for Ossia is between 13.7c to 15.3c. So. the offer price of 14.5c (plus 0.7c first and final dividend if approved at AGM) is within the range.

But what the IFA is using to derive that range will answer your above questions why their valuation range is much less than  your computed valuation. Please refer to page A-32 of the letter from IFA.

Firstly, for the Taiwan distribution business, the IFA is using median trading multiples of comparable companies, i.e. 0.4x P/NAV and 2.7x PER.  You are using liquidation value, which I assume is 1x NAV. So, the iFA has a lower valuation than yours.

Second, for the associate, the IFA is using first quartile trading multiples of comparable companies i.e. 0.7x P/NAV and 9.5x PER with a "floor" value of around 1.1x book value of the associate, coupled with an approximately 30% discount to it. Wow! So complicated. You have a valuation of $40m, but I think with the 30% discount, the IFA will have a lower valuation than yours.

Using sum of the parts (i.e. SOP) of the above, the minimum and maximum estimated value of the shares is being derived.

Hope that the above clarifies.

Hi ghchua, actually i valued the taiwan business at zero. But anyway, i thought it will be a lot better if minority shareholders can vote and choose their IFA. 

And i dont get the rationale that an associate has to be sold at a discount. The associate is VERY VERY PROFITABLE in the past few years, pays very good dividends. In fact, it is this strong dividend cashflow in the past few years that helps accumulate $11.3 million on the balance sheet as of mar 2024.

I still think SGX should take a stronger and bigger role when it comes to delisting

[dzwm87]

It is at a discount because it is a black box. You don't get the full financial statements details and all the more so if certain markets having consumer financing in play.