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In a recent release of The China Mass Affluent White Paper 2015 by CreditEase Wealth Management and Forbes China, China’s mass affluent population, those with investible assets of between Rmb0.6 million and Rmb6 million, numbered 13.88 million, up from 11.97 million in 2013, and is expected to increase to 15.28 million by the end of 2015. The Management OSIM’s chairman and chief executive officer, Ron Sim, holds 66 percent of the company’s shares, indicating a close alignment of shareholders’ and management’s interests. The company also adopts a remuneration policy for its staff comprising a fixed component and a variable component that is linked to the company and individual performance. While we would not be able to determine the exact percentage components, OSIM paid its top 8 directors $7.8 million in FY14, approximately 7.6 percent of its net profit for the year which we believe to be a reasonable amount. Based on the latest four annual reports prior to delisting from Bursa Malaysia, OSIM’s Malaysian competitor, Ogawa, paid its top 9 directors a total remuneration package which made up least 26.7 percent of its net profits. In identifying a growth company, ideally we would prefer a company with a compound annualized growth rate (CAGR) of 15 percent to 50 percent over the last three to five years. While OSIM registered a less than desirable CAGR top line growth of 6.3 percent over the last five years, its overall results met our expectations with a 15.3 percent compounded annual growth in net profits and a 12.7 percent compounded annual growth in earnings per share from $0.0738 in FY10 to $0.1341 in FY14. OSIM has a high current ratio of 4 as of 1H15 with $302.2 million in fixed deposits and $102.3 million in cash. Though a high current ratio allows the company to capitalize on investment opportunities, OSIM’s abnormally high current ratio might stem partly from the founder’s personal preference for higher liquidity after his near brush with bankruptcy during the 1985 recession. Nonetheless, a company which is able to achieve such a growth rate despite having a high current ratio with increasing dividend payout ratios from 27.1 percent in FY10 to 44.7 percent in FY14, is worth our consideration. High Net Cash Over the years, OSIM has been increasing its stake in TWG to 69.9 percent. With TWG being the key growth driver, we can expect another increase in equity interest in TWG within the 12 to 18 months as OSIM’s strong war chest is more than sufficient for such a move. OSIM has also recently acquired 21 percent of Hong Kong-based cosmetics company Laboratoires Du Palais Royal Limited, and 8.41 percent in Trek 2000 International. This could indicate a signal that the group has some collaboration plans in the pipeline.
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