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Foolish Face-Off: OSIM International Ltd. versus OTO Holdings Ltd

Welcome to our latest instalment of the Foolish Face-off! The Foolish Face-off series helps us make quick-and-dirty comparisons between two listed companies with similar business operations.

Previously, we have pitted Singapore Telecommunications Limited (SGX: Z74) and StarHub Ltd. (SGX: CC3) against one another and also made Dairy Farm International Holdings Ltd (SGX: D01) and Tesco PLC (LON: TSCO) clash horns.

Today, we will see two health and wellness firms, OSIM International Ltd. (SGX: O23)and OTO Holdings Ltd (HKG: 6880) fight it out against each other. Osim is listed in Singapore while OTO is listed in Hong Kong.

Introducing the “Boxers”

Osim is number 1 in Asia in several areas. It is the most preferred healthy lifestyle brand, most preferred massage chair brand and has the greatest mind share among healthy lifestyle brands. Its products include massage chairs, foot massagers, neck & shoulder massagers, head massagers, fitness equipment, diagnostic equipment, vitamin & supplements and luxury tea. Osim has a 70% stake in luxury tea maker, TWG Tea. TWG has 30 outlets currently and Osim is targeting to open 15 more by end of 2014.

On the other hand, OTO is ranked first in the relaxation equipment market in terms of units sold in Hong Kong. It had a market share of 65% in 2010, according to Frost & Sullivan. The firm sells 77 products in all and they are broadly divided into four main categories – relaxation products, fitness products, therapeutic products and diagnostic products.

Osim OTO
Market Cap S$1.97 bil HK$499 mil
Revenue* S$648 mil HK$340 mil

                                                *Revenue as of 31 Dec 2013 for Osim and 31 March 2014 for OTO

Round 1: Profitability

In the maiden round, we will analyse the profitability of the companies in terms of profit margins and Return on Equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.

Osim OTO
Gross Margin 70.4% 66.7%
Net Margin 15.8% 2.6%
Return on Equity (ROE) 32.8% 3.3%

 

For every dollar of revenue created by Osim, 15.8 cents is generated as profits but for OTO every dollar of revenue only gave 2.6 cents in profits. This shows that Osim is better at keeping costs low. Osim’s ROE triumphs that of OTO by a huge margin as well.

Osim is the clear winner in this round as all the figures are much better OTO’s.

Winner: Osim

Round 2: Growth

In the second round, we will look at some numbers concerning the growth of the two companies for the past five years. Firms that can grow their sales and profits steadily over time should also see their intrinsic value rise in the long-term.

Osim OTO
Revenue Growth CAGR 8.0% 4.1%
Earnings per Share (EPS) Growth CAGR 36.8% -39.2%
Dividend Growth CAGR 56.5%

Osim grew its EPS at a compounded growth rate of 37% per annum while that of OTO had slumped 39% per year.

Osim had also consistently increased its dividends from 1.0 Singapore cent per share in 2009 to 6.0 Singapore cents per share in 2013. However, at OTO, dividend of 1.0 Hong Kong cent per share was paid in 2012 and 2014 only, without any growth.

Once again, Osim emerges ahead of OTO.

Winner: Osim

Round 3: Valuation

As Foolish investors, it is paramount that we focus on the value of the business and not on the daily changes in the stock price. Looking at the absolute price does not tell us anything about the value of the business. We will now look at the Price-to-Earnings (PE), Price-to-Sales (PS) and Dividend Yield of the two health and wellness outfits.

Osim OTO
Price-to-Earnings (PE) 18.5 57.2
Price-to-Sales (PS) 3.0 1.5
Dividend Yield 2.3% 0.5%
Share Price S$2.63 HK$1.56

 

Even though Osim is more profitable and is seen as a growth company by many, the PE ratio of Osim is lower than OTO’s. The dividend yield of Osim is also higher than that of OTO. Though the absolute price of Osim is much higher than that of OTO, Osim seems to be cheaper in terms of PE and dividend yield.

Winner: Osim

Foolish Bottom Line

Final Score: 3-0 to Osim

Osim is the clear winner as it trounced OTO in all the three rounds.

However, a solid conclusion cannot be made on which company is the better one as there are plenty of other important aspects that have not delved into. For example, we have not looked at the balance sheet strength and the respective cash flow situation of the two companies. We have also not looked into the management and their track record.

This Foolish Face-Off serves as a direction in the right path and takes some heavy-lifting off your back. If you are keen to find out more about how other companies in the same industries stack up against each other, do stay-tuned for more of our Foolish Face-Offs. To keep up to date on the latest company and financial news, sign up now for a FREE subscription to The Motley Fool’s weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.