Bio Osmo set to make a comeback with hotel business
BIO Osmo Bhd is currently undergoing a reverse takeover (RTO) exercise as it sells its loss-making bottled drinking water business and later inject the Impiana Group’s local hotel assets into the group.
The drinking water bottling business had bled the company for some nine years due to narrow margins.
Upon completion of the disposal by the end of the year, Bio Osmo, to be renamed as Impiana Hotels (M) Bhd, will turn to the black due to the already profitable hospitality business contributed by the 75%owned hotel management entity Intra Magnum Sdn Bhd.
Prospects for the hotel industry looks promising, supported by the growing global demand for quality hotel assets.
Bio Osmo executive director Azrin Kamaluddin tells StarBizWeek that it is vital for the Impiana Group to gain access to capital markets in order to be at the forefront of deals.
“The Impiana Group has always been on the lookout for assets to add to its stable. As a private entity, the company used to seek conventional bank funding for the acquisition of assets.
“However, the turnaround time for funding would take months, and Impiana Group would miss out on deals. Hospitality assets only last a month on the market before being snapped up by private equity (PE) firms and institutional investors,” he says.
Across the region, hospitality assets have been the flavour of the year for PE and general funds, as hotel real estate provide good capital appreciation and generate more attractive yields as compared to other asset classes.
According to a global hotel investment outlook report by JLL, there has been a growing trend of hotels being purchased by investors with portfolios involving multiple asset classes, as opposed to specialist hotel investors.
“The large inflow of private capital comes from investors like high net-worth individuals and family offices moving away from hedge funds to private equity, in search of a higher return.
“Over the past few years, institutional investors have been increasingly active in acquiring hotel properties, more than doubling market share since 2014.
“They will continue to grow as a key buyer group, driven by two key factors – a need for income diversification, and increasing familiarity and comfort with hotel real estate,” the report says.
Singapore-based Banyan Tree Holdings Ltd is a good reference of what Bio Osmo hopes to achieve with Impiana hotels.
Banyan Tree started with its boutique resort in Phuket back in 1994, and today manages and/or owns more than 30 hotels and resorts, over 60 spas and 80 retail galleries, as well as three golf courses across 27 countries.
“If you look at Banyan Tree’s 2017 results, the share price then had a price-earnings ratio of 34 times. This high valuation shows just how highly prized a good hospitality brand is,” says Azrin.
Impiana Hotels is a homegrown brand that has been around for more than 25 years, with 1,126 rooms under management currently.
Assets under the Impiana brand vary between four to five-star business city hotels to exclusive villa resorts.
There are a total of 10 Impiana hotel and villa assets located across Malaysia, Thailand and Indonesia, of which two (Ubud, Bali and Cherating) are currently under construction.
The completion of Impiana Ubud and Impiana Cherating will add another 622 rooms under management.
In this RTO, only Impiana Group’s Malaysian assets in Senai, Cherating, Ipoh, Pangkor, and the 20% stake in Impiana KLCC are to be injected into the listed company.
Note that Impiana Pangkor is still at the planning stage of development, with commencement of construction likely in late 2019 to early 2020.
Management arm Impiana Resort Management and Hotels Sdn Bhd will also be injected into the company.
Essentially, Bio Osmo shall have two revenue streams when it becomes a full-fledged hospitality player – contract-based hotel management services and rooms.
Between the two, the hotel management services command a higher earnings before interest, tax, depreciation and amortisation (EBITDA) margin at an estimated 60%.
Room revenue, on the other hand, has an EBITDA margin of about 30% to 40%, depending on the gearing of the company.
“Bio Osmo does not have any borrowings. The assets to be injected into Bio Osmo are at healthy gearing levels and part of the proceeds from the proposed private placement and offer for sale will be used to pare down borrowings,” says Azrin.
Following the proposed acquisitions of the assets, Bio Osmo will have a gearing of 0.16 times.
The proposed private placement of up to two billion Bio Osmo shares is expected to pare down the group’s gearing to 0.62 times.
Stripping out the discontinued water bottling business, Bio Osmo would have made a net profit of RM1.08mil for the 15-month period ended Sept 30, 2018.
For the financial year ended Dec 31, 2017, the acquisition targets of Impiana assets registered a revenue of RM21.12mil and a net loss of RM12.91mil.
The net loss was mainly due to Impiana Cherating, which is under construction and estimated to be completed by 2020 to 2021.
Going forward, Bio Osmo shall continue to look for assets in best locations where the group can offer quality products and services at value.
“A hospitality company can never depend on a single market. Hence, it is important that the Impiana hotel network expands regionally.
“We want to go beyond Phuket and Bali as we consider Bangkok and Jakarta next, as the hospitality industry in these two locations are performing well,” says Azrin, adding that the group will also acquire more management contracts to add to its credibility of being an established hotel manager.
He notes that there is a lack of supply of hospitality properties in Bangkok and Jakarta, and hopes the faster access to capital after the corporate exercise will enable the group to speed up in its race to acquire quality assets.
Azrin highlights that the hotel industry in Malaysia has faced its share of challenges for the past three years.
Average occupancy rates were down 10% to 15% per annum during that time, amid economic uncertainty and declining tourist numbers.
“As long as oil and gas prices do not take an unexpected dip, the local hotel industry will be able to build upon the recovery seen this year.
“Looking at all indications and forward bookings, 2019 looks to be a better year ahead,” he says.