The current situation of the company
On November 15, 2021, Oshudan announced the acquisition of about 83 per cent of Sol de Janeiro, a US high-end care brand, for a cash consideration of $373.5 million (based on a 100 per cent equity value of $450 million). The transaction is financed by about 40 million euros in cash and about 300 million euros in bank loans (interest rate 1%). Management expects the deal to be completed by the end of 2021. After the acquisition, Oshudan will hold 83% of Sol deJaneiro. Brand founder Ms. Heela YANG said she will share the remaining 17% with co-founder Mr. MarcCapra. Ms. Heela YANG and key managers will continue to be directly responsible for the development and operation of the brand.
Comment
We are optimistic about this acquisition. For this transaction, the management said on the conference call: 1) committed to building a leading portfolio of high-end care brands to achieve balanced regional development. The company believes that Sol deJaneiro is well in line with the company's strategy in terms of brand status, global influence, profitability and development prospects. Sol de Janeiro's body care business in the United States complements Oshudan's regional balanced development strategy of building a strong brand portfolio in major markets. After the acquisition, Sol de Janeiro can use Oshudan's global vision to expand into new markets such as the Asia-Pacific region (the next "blue ocean market"). Ms. Heela YANG plans to invest more in product development and brand awareness. 2) the fundamentals and growth prospects are sound, and the valuation is relatively reasonable. The acquisition, based on the 100% equity value of Sol de Janeiro common stock at $450 million, corresponds to 4.4x 2021 P / S and 21.1x 2021 P/EBITDA, which is valued at less than 6.4x Pamp S and 22.5x P/EBITDA when Oshudan acquired Elemis in January 2019. Valuation multiples correspond to sales of $103 million in 2021 and adjusted EBITDA of $21.3 million, with a three-year average compound annual growth rate of 63 per cent and 85 per cent, respectively. 3) We expect the annualized growth of sales and net profit after the consolidated statement to be about 8% and 9% respectively. We expect revenue to grow by 30-40% annualized in the short term, driven by demand from existing markets (such as North America) and potential new markets (such as Asia-Pacific). Thanks to stable channels (24% for brand-owned e-commerce channels and 76% for wholesale cooperation channels) and digital business models (limited depreciation and amortization costs, low operating leverage), we expect to maintain an EBITDA margin of more than 20% and a net interest rate of about 15%.
Valuation and suggestion
Assuming that the company begins to consolidate in January 2022 (that is, the beginning of FY4Q22), we raise FY22 revenue and net profit forecasts by 2% and 2%, and FY23 revenue and net profit forecasts by 8% and 9%. Maintain its outperform industry rating and raise its target price by 6 per cent to HK $36, corresponding to 32 times FY22 annual earnings and 24 times FY23 annual earnings, which has 15 per cent room to rise from current share prices. The current share price is HK $31.40, corresponding to 27 times FY22's annual earnings and 20 times FY23's annual earnings.
Risk.
The integration of acquisition business is not as expected; the volume of Elemis is not as expected; the epidemic is intensified; the risk of exchange rate fluctuations.