Business

Saturday September 26, 2009

Ogawa aims to strengthen overseas presence

By CECILIA KOK


THE journey of a stream always begins small. Then it becomes larger as it flows downstream, and subsequently merges with the mighty ocean. That is a simple philosophy encapsulated in the Japanese word “ogawa”.

The fact that this is the origin of Ogawa World Bhd’s name succinctly reflects the company’s long-term aspiration to be a global brand with a strong presence in international markets, says executive director Louis Chong.

Founded in 1996, the healthcare and wellness company has, over the past few years, gained a firm foothold in 10 countries, namely Malaysia, Singapore, China, Hong Kong, Indonesia, Australia, Vietnam, Thailand, Myanmar and Saudi Arabia.

Chong says Ogawa currently has around 180 retail outlets and counters operating in those countries. With the global economic outlook turning more positive, conditions are set for the Main Market company to accelerate its plans to build a bigger presence overseas.

Still, there are risks in betting heavily on the economic recovery, which is why Chong points out that “the company is treading cautiously, and not aggressively, with its expansion plans in both the local and international markets”.

He reveals that the company is negotiating with potential sole distributors in new markets such as India, Dubai and Europe. “Expanding into new markets through sole distributorships will help minimise our risk exposure to foreign markets, and at the same time, help us save on capital expenditure,” he explains.

“What’s more, it provides a faster and shorter route to build our presence overseas,” Chong says, adding that the company hopes to penetrate the targeted markets within the next three years.

Emerging market opportunities

Ogawa is bullish about the markets in India, Dubai and Europe because of the huge business opportunities they offer. For instance, India has a huge and growing middle-class population, while the oil-rich Middle Eastern countries make up a large affluent market.

Already, its young business in Saudi Arabia has yielded positive feedback. Since venturing into the country about six months ago, Ogawa’s brand can now be found in 10 outlets concentrated in Jeddah and Riyadh, aiming mainly for upscale customers.

It is understood that in Saudi Arabia, most of the Ogawa products are sold for more than RM10,000 each.

“Our brand is well-received in the Middle East because some of the people there, especially those who have been to Malaysia, are already familiar with our brand even before we set foot there,” Chong says.

While the opportunities in new markets look enticing, Chong says China will still be the main foreign market for Ogawa for the next few years. The company intends to strengthen its network chain in key cities like Beijing, Shanghai and Shenzen.

Ogawa has committed RM32mil as capital expenditure for business expansion from 2008 to 2010. So far, the bulk of that budget has been used up, and Chong says the company is on track to fully utilise the funds within the stipulated time frame.

With the company’s zero gearing and cash per share of 35 sen as of its financial year ended June 2009 (FY09), analysts say Ogawa has sufficient financial capacity to push ahead with its growth plans.

According to Chong, Ogawa aims to increase its overseas contributions to total group revenue from the present range of 30% to 35% to 50% in the next three years.

That, however, does not mean the company is paying less attention to the Malaysian market. While Ogawa does not have any plan to set up new stores in the country, the company believes in putting in extra effort to maintain its share of the domestic market.

Ogawa is currently the industry leader, with a market share of about 36% last year.

In Malaysia, the company faces stiff competition from five major players, including Singapore-listed Osim International Ltd, which is estimated to command about 21% market share in Malaysia last year, and several other Japanese brands such as Panasonic.

Chong believes that Ogawa already has wide market coverage in Malaysia through its retail network. So the focus for the local market now is to increase the penetration rates for its products, especially massage chairs.

“The market in Malaysia is huge, considering that only 12% of households own massage chairs,” he says.

Weathering the storm

Massage chairs form the core business for the company currently. However, for strategic reasons, Chong refuses to disclose the amount that this segment contributes to group revenue.

Such products are considered discretionary items. During an economic slowdown, when consumers slash purchases that are deemed less-than-necessary, businesses such as Ogawa will definitely be affected.

Chong does not deny that there had been cutbacks in consumer spending on his company’s products in the last one year. Ogawa’s strategy of shifting towards products that offer value for money has been effective in helping it weather the storm.

He explains that it is necessary to switch focus from premium products to a more affordable range so as to capture a larger market and to sustain the business during the slowdown. The premium products are priced between RM3,000 and RM20,000, while items in the affordable range cost less than RM1,000 each.

“Value for money is the most important consideration for consumers when it comes to healthcare products,” Chong explains, adding that Ogawa places a lot of emphasis on product development in order to target the right market.

It has a budget of RM3.8mil for research and development for a three-year period from 2008. Having spent more than 50% of the allocation to date, Ogawa has managed to roll out more than 15 new products.

In normal market conditions, it spends about 10% to 12% of its revenue on advertising and promotion (A&P). However, the recent economic slump has forced the company to slash its A&P budget for its previous financial year to around 4% to 5% of revenue.

“It was a prudent move because we saw that no matter how aggressively we promote our brand, when consumer confidence is not there, people will not spend,” Chong says.

But with the economy turning the corner, the outlook for Ogawa has improved significantly. According to the Malaysian Institute of Economic Research, the consumer confidence index surged 26.9 points quarter-on-quarter and 35.3 points year-on-year (y-o-y) to 105.8 points in the second quarter of 2009. (Any point above 100 indicates a bullish sentiment.)

SJ Securities Sdn Bhd, in its recent report, says the recovery of consumer confidence will most likely benefit Ogawa as consumers begin reconsidering discretionary purchases.

Returning to black

Ogawa was in the black in the fourth quarter of FY09 (4Q09), with a net profit of RM3.3mil, compared with net losses of RM300,000 in 3Q09 and RM6.8mil in 4Q08. This was attributable to improving sales and its cost containment efforts.

For 4Q09, Ogawa’s revenue grew 9.5% y-o-y to RM42mil. This was mainly attributable to seasonally stronger sales on Mother’s Day and Father’s Day, which fall in May and June, respectively.

Chong is confident that the company will remain in the black for the current financial year, as the general economic outlook has improved considerably and the company will be stepping up efforts to market its products.

Standard & Poor’s echoes this sentiment. In its report, the research outfit asserts its upbeat outlook on the group’s earnings for FY10, following a strong showing in 4Q09.

Meanwhile, Chong clarifies that the company does not have a dividend policy yet, although some market pundits are speculating that the company will most likely resume paying dividends in FY10 as it returns to profitability. The last time the company paid out dividends was in FY07 at five sen per share.

Chong affirms the company’s commitment to use its cash pile to look out for new business opportunities to enhance its revenue.

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