Sunday, May 20, 2012

AmFraser Day - Nam Cheong, OSIM and MIIF

Nam Cheong

  • At the peak of the oil prices, many OSV builders built the more sophisticated deep water OSVs. However, Nam Cheong's focus is more on the shallow water OSV which are continuously needed for production. Production for the shallow water will normally continue until oil prices really hit to the low of USD 30 per barrel.
  • Nam Cheong's built-to-stock model takes around 21-24 months to complete building the ships.
  • The China's shipbuilder that Nam Cheong outsourced to are state-owned enterprise and are what that has been recommended by the officials there. Their chairman has a close relationship with the officials since the 1980s.
  • Some of their major clients and number of ships ordered include Bumi Armada Berhad (13), Perdana Petroleum Berhad (8), Vroon B.V (7), Topaz Energy (6) and Tidewater (3). 
  • Under the Petronas's bidding system, bidders are split into 2 tiers between "Malaysian Flagged Builder" and "Non-Malaysian Flagged Builder". As such, through the LOA by Nam Cheong, bidder will have an advantage over those without the LOA.
  • As for ship financing during a recession, it was said that so long as their customers secured a contract with Petronas and e.t.c, banks will be willing to lend to them to buy a ship from Nam Cheong. 
  • Going forward, Nam Cheong will improve their build-to-stock model by allowing more flexibility such that they hope to be able to cater to 90% of demand.
  • They will also be building more PSV as there's a low supply of Asian sea truck.


  • OSIM itself contributed more than 80% of their profit and 75% of their revenue.
  • China is the number 1 market contributing 28% of the business's revenue. Other major market contributors are Hong Kong and Taiwan (16% each). 
  • uDivine has been sold out during Mother's day and they have a waiting list of 1 month.
  • As for GNC, it has been said the the Singapore and Malaysia operations are one of the most profitable and the CFO describes it as cash cow. However, I am sure profit margin is not as high since they have to pay a 5% franchisee fee on their revenue.
  • For Richlife, OSIM owns the brand which I feel is a good thing since they need not pay franchisee fee. It has not yet been profitable as they say health supplement shops are usually lose-making in the first few years.
  • For TWG, they have been warmly welcomed by malls and hotels as they bring about one of  the highest profitability among the shops in the mall. Their franchisee in Dubai is Dubai Mall itself which is the mall with the tallest tower in the world. 
  • For Brookstone, they have learnt some key lessons. One of them is to make sure that they have a controlling interest. For Brookstone, while they have a majority share, they are unable to control the company as permission is needed from the other 2 private-equity funds shareholder. It's said that these PE funds are more interested in the short-term interest while OSIM is looking it from a long-term business point of view.
  • Brookstone will still have a chance at IPO in 3-4 years time if the recovery continues.
  • They have also learnt not to depend on bankers though I still don't like their issuance of convertible bond.
  • Private bankers have looked for Ron Sim to privatise the company since it is extremely cheap at 5-6 cents during the 2008 GFC. However, Ron Sim chose not to do so as he wants to protect and maintain their established reputation. 
  • The company has also started changing their made-in-Japan model to made-in-China model as they understand that the made-in-Japan model is unsustainable. By shifting production of uDivine in Nov 2010 to their JV factory in China, they have managed to reduce its ASP from $9000 to $5000+. The lower ASP has provided a more consistent revenue with higher volume without impacting the margin.
  • Replacement cycle of the product is around 3-5 years and they say 25% of their revenue comes from recurring customers.
  • They also have their house brand health supplement under the brand "LAC" and its LAC Activated Liver Protection is their top seller now with sale of 200 bottles a day.

  • Characteristic of infrastructure fund - High barrier of entry, Long operational life, stable predictable cash flow, low demand elasticity
  • Most of the debt in its various infrastructure are project-financed, which means that there is no recourse to MIIF. 
  • For TBC, Taiwan is split into 51 regions, TBC has a monopoly over 5 of the regions.
  • Owning all the cables infrastructure, their license is renewed every 9 years. However, MIIF believes this to be not of any issue.
  • They aim to grow through 3 areas namely Broadband, Digital and Cable TV. Cable TV is really cheap in Taiwan as it cost USD 15 to have access to 100 channels.
  • For HNE, detolling of Xin Guang has lead to a slight drop in total revenue. However, it has also lead to congestion of Xin Guang and they are starting to see lost toll coming back.
  • 2012 opening of Guang He expressway is likely to bring about 6 to 8 % growth in traffic.
  • As the current road has a high capacity, there is no need to have additional capex to widen it.
  • A key risk highlighted is that China is planning to standardize the toll rate in Guangzhou and this will impact HNE earning. The background is that tollroad built after 2003 is standardized at 60 cents per km. However, part of HNE's road toll is negotiated before 2003 of which the toll rate is negotiable. 
  • The impact will only be for the phase 1 whose current toll rate is 75 cents per km. As such, even if MIIF fails to negotiate in maintaining the toll, maximum impact will be around 10 percent.
  • For CSP, MIIF has managed to grow the revenue by diversifying the cargo.
  • As Chinese steel is cheaper than international steel, there has been a lot of exporting of steel from China recently.
  • 40% of all paper and pulp import into China goes through CXP.
  • Previously, the 5.5 cents dividend is partially paid from cash balance as they are not fully covered by OCF. This is because they have invested additional equity in TBC. For 2012, they expect dividend to be fully covered by OCF.


  1. Thanks for the nice summary. What about Kingsmen? Are you doing a separate detailed analysis of it?

  2. i will not be doing on kingsmen as the powerpoint used is very similar to that during the investfair. i didn't get any new insight other than that they are seeking to renew the $25 million F1 contract for another 5 years. you can go to the blog below for more info about kingsmen