Brokers' Take

Brokers' Take

Osim International
August 17 close: $1.27

CIMB-GK RESEARCH, August 17

DELISTING of Global Active (GA) is almost a certainty. The move does not surprise us. We mentioned in our April note that Osim is keen to privatise GA. Under listing requirements, Osim requires majority approval of at least 75 per cent of the nominal value of shares to delist GA. GA's CEO and Osim own a combined 82 per cent of GA. We do not think there will be voting against the move by 10 per cent of the shareholders.

Potential $10 million investment outlay can be funded internally. We estimate that Osim has invested $33 million for its 67 per cent stake. The CEO of GA is likely to retain her 15 per cent stake. If all the other shareholders accept Osim's offer of 23 cents a share (which we doubt), Osim will need to fork out $9.9 million, which will raise its stake in GA to 85 per cent.

It's a good move for the long term. GA is experiencing the growing pains of expansion and penetration of new markets, while Osim's Nutrition concept is still under incubation after two years due to a lack of breadth in products and distribution network. GA is a strategic acquisition as it comes with an established brand name and provides Osim with an extensive distribution channel in Asia.

A delisting will enable GA's management to better focus on strategies and operational aspects. It will also give Osim greater flexibility in integrating its Nutrition concept with GA's nutraceutical chain and develop this outfit into a much bigger business. This nutrition arm could be primed for a listing a few years down the road.

The GA move will have minimal impact; no change to our 'outperform' call and $1.46 price target (14x FY05). GA incurred a small loss in FY3/05. We are projecting breakeven in 2H FY06.

Against Osim's net profit of $32 million in FY04 and our projected $46.8 million for FY05, the impact will be minimal. No change to our forecasts.
OUTPERFORM