Ossia International Limited

[yjingfa]

Hi money,
Do note $0.145 is just the first salvo. The Gohs' position now (as at 10Jul) is at 76.9%. Depending on acceptances by minority shareholders, the Gohs may have to raise their offer later in order to reach 90%.

The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  The fact that they didn't include or look into the publicly available financial and other information of the Harvey Norman SG & M'sia operations is a serious cause for concern to me.

Hi dydx, 

Thumbs up to this:
" The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  "

Quite interesting information on the background information. When millions of dollars are involved in an offer and you get IFA made advice to independent directors who then advice minority shareholders and there is no detailed discussion of Pertama Holdings and its profitability, i wonder what is going on. 

When something important and relevant isnt discussed in detail, how do minority shareholders get the whole picture to make a fair and reasonable decision?

This is financial statements for Pertama (financial year ended June 2023)
  Ossia_Pertama_June 2023.pdf (Size: 117.97 KB / Downloads: 10)

[weijian]

Hi money,
Do note $0.145 is just the first salvo. The Gohs' position now (as at 10Jul) is at 76.9%. Depending on acceptances by minority shareholders, the Gohs may have to raise their offer later in order to reach 90%.

The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  The fact that they didn't include or look into the publicly available financial and other information of the Harvey Norman SG & M'sia operations is a serious cause for concern to me.

Hi dydx, 

Thumbs up to this:
" The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  "

Quite interesting information on the background information. When millions of dollars are involved in an offer and you get IFA made advice to independent directors who then advice minority shareholders and there is no detailed discussion of Pertama Holdings and its profitability, i wonder what is going on. 

When something important and relevant isnt discussed in detail, how do minority shareholders get the whole picture to make a fair and reasonable decision?

This is financial statements for Pertama (financial year ended June 2023)

While this report filed with ACRA is relatively still a black box but wow, the ROA/ROE are quite consistent at 10%/20% for past 3 years! While we do expect decent ROA/ROE for a retailer that is generally asset light with negative working capital, but the consistent ROA/ROE does suggest Pertama is doing something right.

And the IFA believes a 30% discount to its BV due to lack of control is legit?

[dydx]

Goh Brothers started the GO on 12Jun at 76.56%, and as of yesterday (29Aug) they have managed to raise it to 85.92%. Today is the closing date, and it is clear that Ossia will remain listed despite the unacceptable "Fair and Reasonable" IFA opinion. So minority shareholders again have prevailed, but Goh Brothers managed to increase their combined interest by 9.36%, to the detriment of those minority shareholders who chose to accept the offer or sold their shares.

There is little doubt that Ossia's 19.76% effective interest in the Harvey Norman SG/M'sia business operation is worth a lot more than what is stated in the balance sheet, and rational thinking would point to the conclusion that this investment has to be the main motivation behind the Goh Brothers mounting the voluntary GO. Given more time, we can reasonably expect the Goh Brothers to negotiate disposing the 19.76% effective interest to the Aussie parent Harvey Norman Holdings Ltd. When 2 friendly business partners negotiate a deal of settlement, usually it should be based on a fair price; otherwise, they can always go for independent valuation and arbitration.

The Aussie parent has just released its full-year results today...
http://clients.weblink.com.au/news/pdf/02846338.pdf
http://clients.weblink.com.au/news/pdf/02846342.pdf  https://clients.weblink.com.au/news/pdf/02846330.pdf

For FY24, Harvey Norman Sg/M'sia posted higher revenue of AUD707.72m, and a slightly lower PBT of AUD35.66m. A PER of 8x (conservative) would give a valuation AUD285m, or $251m. A 19.76% interest would bring $49.6m, compared with the corresponding 31Mar24 BV at $31.1m.

[yjingfa]

I have been investing in SG stock marker for nearly 30 years and I have been in the financial industry as an analyst, fund manager and CIO for more than a decade. I have yet to come across an IFA recommendation as ridiculous as Ossia's. I have a friend who knows the IFA people , so I only comment on their recommendation now (after much consideration).

(A) Ossia's NAV = $0.22 (Mar 2024).  As any investment banker knows, NAV is one of the metrics to consider as evaluate the reasonableness & fairness of an offer. The offer price of $0.145 is at a discount of 34% from NAV

(B) The offer price is barely 20% over the last traded price of $0.12. Considering that  it is an illiquid and low-price counter, any price increase over the last traded price will look large in percentage term. And if 20% premium is considered substantial, by the IFA, then GE and Second Chance's offer premium of 39-42% over last traded price are considered... astronomical? Isetan's offer premium of 173% must be hyper-astronomical?

© Harvey Norman Australia trades at PER 16x, above NAV with a market cap of $6bn.  Courts (2019) , Challenger (2019, 2023) and Pertama (1999, 2011, 2013) were acquired/delisted from SGX in the respective years (in brackets). The offer for Courts (a net debt ) were deemed Fair but not reasonable by the IFA (KPMG) because the offer price was below NAV (PER 12x). Challenger (net cash) were delisted at above NAV and PER (13x). Pertama itself were delisted at similar valuation metrics over a few attempts. In comparison, the offer price for Ossia (net cash) is at PER 4-5x and below more than 30% below NAV. Moreover, the assets of Ossia (NAV) should be worth more than that of those peers because of its stake in Harvey Norman (see below).

© Ossia has a 40% stake in Harvey Norman Ossia Asia (HNOA) which owns 49.4% in Pertama Holdings. The value of Ossia's stake in Harvey Norman cannot be simply reduced to a PE muliple of Pertama Holdings' earnings which itself has substantial cash holdings (based on Pertama Holdings' accounts as at 30 June 2023). Currently, Harvey Norman's operations in Malaysia and Singapore are carried out though Pertama Holdings which Ossia has an effective stake of 19.8%. The IFA was right to point out that HNOA has no principal activity but is there any agreement between Ossia and Harvey Norman Australia that any expansion to Asian countries outside Malaysia and Singapore will be carried out through HNOA? If there is, and Harvey Norman were to expand to Indonesia, the Philippines or China, then Ossia's stake in these businesses will be 40% and not 19.8%.

(D) Harvey Norman Australia has pitched Asia (esp. Malaysia) to investors as one its most exciting growth markets. This is not just in 2023 Annual report (as pointed out by SGX) but also in a presentation to investors in 2022. Malaysia is one of few economies in the world in 2024 where local consumption is still going strong. So is Taiwan where Ossia's Great Alps' operations are carried out. Only in Singapore, consumption looks sluggish despite all the vouchers that has been distributed out by the government this year (based on Singstat Retail Sales data and information gleaned from retail REITS' presentation to investors).

Some of the above arguments are forward-looking and valuation of a business is always tricky with a wide range of fair values deemed reasonable. Nonetheless, the above hard-to-refute arguments  does call into question the sanity of the IFA's recommendation. It is sad to see that it has taken SGX so long to seek clarification from Ossia on this matter.  Despite the IFA report being issued on 16 July, SGX apparently only queried Ossia on 19 August, way almost two weeks after the first offer closing date (8 August). Had the acceptances been forthcoming fast and offer closed on 8 August, SGX's query would be too little too late! It might still be. We have to wait and see!

Thanks for sharing the detailed comments. I think there are some guidelines for IFA.

Perhaps it can be a good idea for OPMIs (especially those with knowledge in this area) to put their heads together to feedback ?

-----------------

PRACTICE STATEMENT ON THE OPINION ISSUED BY AN INDEPENDENT FINANCIAL ADVISER IN RELATION TO OFFERS, WHITEWASH WAIVERS AND DISPOSAL OF ASSETS UNDER THE SINGAPORE CODE ON TAKE-OVERS AND MERGERS (THE “CODE”)
https://www.mas.gov.sg/-/media/mas/resou...-clean.pdf

Guidelines on Independent Financial Advisers
https://api2.sgx.com/sites/default/files...nal%29.pdf

https://www.sgxgroup.com/media-centre/20...-financial

https://www.acra.gov.sg/accountancy/prof...-resources

Yeah. I think it is time to feedback to SGX RegCo on this issue.

[ghchua]

Hi yjingfa,

Since you have worked as an analyst before, I am sure you would have understood the main difference between an analyst and IFA. Analysts gave forecast on the company based on future prospects and normally will have a target price based on some models in place. IFA though, do not take into account or reflect the future or prospective financial performance of a company when they gave an opinion.

The above to me, is the main difference when I am reading analyst and IFA reports. Some of your comments above are forward looking and based on future growth prospects of Harvey Norman Australia, which obviously the IFA did not take into consideration. It is consistent with their practice code.

However, I do agree with you on the part whereby you had shown the likes of Courts Asia, Pertama, Challenger etc delisting metrics plus recent privatisation premiums paid by companies like Isetan Singapore and Second Chance over their last transacted price. But do remember that the IFA had stated that they are using first quartile premium (for those with greater than 75% stake before making the offer) of VWAP and P/NAV when doing their analysis, and not median or average numbers. They have also explained their reason for using first quartile, and it is all in their letter.

As for Ossia's NAV as compared to the offer price, the IFA has an estimated range of value for Ossia and the offer price is within that. The IFA estimated range of value is below Ossia's NAV though.

I also agree with you that their valuation on Ossia's investment in its associate can be better than just using pure P/NAV and PE numbers, without looking at its capital structure.

Hope that the above clarifies.