This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010
Now, with the global economy starting to pick up, Tan is pinning his hopes on Cosway, a direct-selling business he acquired in 1994, as the next money-spinning star of the group.
Cosway was delisted in 2007 at a market value of about RM413 million on the grounds that investors did not value the business.
Nevertheless, through a corporate exercise completed late last year, Cosway was “relisted”, but in Hong Kong into Berjaya Holdings HK (Ltd), which was renamed Cosway Corp Ltd, at some RM1.11 billion (HK$2.55 billion).
Its implied value has grown 10 times higher, based on the HK$9.84 billion (RM4.28 billion) market capitalisation of Cosway. This is based on its closing share price of HK$0.78 last Thursday, and the inclusion of Cosway’s 10.95 billion units of ICULS.
(In taking into account the HK9.84 billion market capitalisation, it is assumed that the ICULS that are convertible into Cosway shares on a one-to-one basis are valued at the same price as the stock.)
“Cosway has the potential to become the largest market cap company within all the businesses that I am involved in,” says Tan. He says it is within reach of beating BToto’s market cap of RM5.9 billion now, and could surpass DiGi’s current market capitalisation of RM17 billion in the future.
“This is not a pipe dream. I have grown many businesses to be worth billions. And I think Cosway has tremendous potential.”
Cosway, Tan says, plans to go into four new markets this year — Japan, the US, the UK and Turkey. This will be on top of the existing nine markets that Cosway is currently operating in — Australia, Brunei, Hong Kong, Indonesia, South Korea, Singapore, Taiwan and Thailand, apart from Malaysia.
From the target of 1,600 stores (730 local and 870 overseas stores) this year, the company plans a sharp increase to 2,420 stores (including 1,650 overseas stores) in 2011, 4,610 stores (3,400 overseas stores) in 2012, and 8,950 stores (7,500 overseas stores) in 2013.
As the numbers show, most of the projected new store openings are in overseas markets. On whether the projected 460% increase in store fronts between 2010 and 2013 is a bit too optimistic, Tan explains that if Cosway can open 730 profitable stores in Malaysia, it is only logical to assume that it can multiply the number of new store openings as it enters huge markets like the US and China.
Funding woes?
Funding, according to Tan, is not a problem as the expansion can largely be financed by Cosway’s growing cash flow.
According to Cosway’s managing director Al Chuah, it costs an average of RM50,000 to open a new store, and this investment can be recovered in a matter of months.
Tan says they can handle such expansion using internal cash flow.
“But if there are immediate opportunities and we need bigger capital to grow, we can borrow some money. Cosway can gear up. It won’t be a problem if it has to borrow RM100 million to RM200 million, or even in US dollars. We can also place out new shares, but this won’t be necessary,” says Tan.
Of Cosway’s previous overseas expansions that flopped, Tan says the company wasn’t ready at the time.
“We went into the Philippines, Mexico and Brazil and we ended up losing quite a bit of money. But it was a good lesson. In recent years, Cosway has improved the business model and found the right formula — the free store model — to go overseas,” says Tan. (See separate story on Cosway’s changing strategy.)
A free-store model is where Cosway sets up the store, pays the rent and expenses and gets an individual to run it purely on a commission basis.
This strategy has been so popular, Cosway is looking at applying its direct marketing business model to other products, such as fashion and apparel.
“Think about it — Cosway has the potential to become the Walmart of direct selling. And we want to be in the top three of global direct-selling companies in 10 to 15 years. Of course when we say this, people may laugh. But you know I’ve started so many businesses, everybody laughed at me. But when we finally made it up there, nobody laughed,” says Tan.
Thursday, March 4, 2010
Cover Story: ‘Entrepreneurship is about trying new things’
This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010
When you have to sell, you have to sell. You have to sell to pay the banks. During the crisis, when you needed the umbrella the most, and when it rained heavily, they took away the umbrella.
An oft-discussed issue is the under-valuation of Berjaya Corp Bhd, helmed by chairman and CEO Tan Sri Vincent Tan.
Based on sum-of-parts valuation, BCorp — the holding company of an array of assets ranging from property to gaming and leisure — should be worth much more. But the market does not accord the group’s assets the value they deserve.
However, Tan says there is a new gem in Berjaya Group in the form of Cosway, which is shaping up to be the biggest business he has ever built up.
In an interview with the The Edge, Tan explains why Cosway will be the biggest thing for Berjaya in the years to come. Below are excerpts of the interview.
Cosway has an ambitious plan to open 3,000 new stores in the next two years. How does it plan to fund the expansion?
It doesn’t require much capital, because it is a marketing business. We can handle such an expansion using internal cash flow. But of course, we would also like to pay some dividends to shareholders. Cosway has virtually no borrowings. So we can, for example, give half or three-quarters of profits as dividends and use the remainder of the cash flow to grow the business. But if there are immediate opportunities and we need bigger capital to grow, we can borrow some money. Cosway can gear up. With its track record, I think a lot of banks, whether local or overseas, would want to do business with Cosway.
So to your question, funding is not a problem. For instance, to set up in China, the government actually requires us to own some factories there to produce some of the products. Why not? Even if we invest RM300 million to RM400 million there, it is not a problem. We can raise the funds through our own cash flow or borrowings. We could also place out new shares, but we don’t think this is necessary.
What is the sourcing strategy for Cosway?
We prefer the OEMs (original equipment manufacturers) to manufacture for us. We get top manufacturers and suppliers to produce for us, from Taiwan, South Korea, Japan, Europe, Italy, the UK, France and also the US. Let’s say later we go to Turkey, we will also source some products there. We would support the local industry by helping them to export. I am sure there will be some good products that we can sell within that country and also abroad. So we are like an import and export company, but at the same time, we do direct distribution to the consumers. So, when you come to Cosway, you can buy products from all over the world. But of all the products we sell, we label them with our own brand names, such as Bioglo and Oriyen. These brands are owned by Cosway.
Would you not relist Cosway at all, and keep it as BCorp’s core business?
To give recognition to the value, we need to list Cosway. If I keep Cosway in BCorp’s books, everybody would think it is only worth RM300 million to RM400 million. And they are not wrong, because I delisted Cosway (in 2007) on the basis of about RM400 million, and that it had other business inside also, such as Singer. So we delisted it. Two years later, a US investor came [wanting] to buy 10%. So I said RM100 million for a 10% stake, because I valued the company at RM1 billion at that time. The investor said, why so expensive, because we just delisted it for so little money. I said, yeah, that was why I delisted Cosway, because nobody wanted to buy the shares. So if you want to buy, it is RM100 million for 10%. So at the end, he agreed to pay RM100 million for 10%. So straight away, someone had valued Cosway at RM1 billion. Now Cosway is worth some RM4.8 billion, that investor is up 380% on his RM100 million investment.
When you have to sell, you have to sell. You have to sell to pay the banks. During the crisis, when you needed the umbrella the most, and when it rained heavily, they took away the umbrella.
An oft-discussed issue is the under-valuation of Berjaya Corp Bhd, helmed by chairman and CEO Tan Sri Vincent Tan.
Based on sum-of-parts valuation, BCorp — the holding company of an array of assets ranging from property to gaming and leisure — should be worth much more. But the market does not accord the group’s assets the value they deserve.
However, Tan says there is a new gem in Berjaya Group in the form of Cosway, which is shaping up to be the biggest business he has ever built up.
In an interview with the The Edge, Tan explains why Cosway will be the biggest thing for Berjaya in the years to come. Below are excerpts of the interview.
Cosway has an ambitious plan to open 3,000 new stores in the next two years. How does it plan to fund the expansion?
It doesn’t require much capital, because it is a marketing business. We can handle such an expansion using internal cash flow. But of course, we would also like to pay some dividends to shareholders. Cosway has virtually no borrowings. So we can, for example, give half or three-quarters of profits as dividends and use the remainder of the cash flow to grow the business. But if there are immediate opportunities and we need bigger capital to grow, we can borrow some money. Cosway can gear up. With its track record, I think a lot of banks, whether local or overseas, would want to do business with Cosway.
So to your question, funding is not a problem. For instance, to set up in China, the government actually requires us to own some factories there to produce some of the products. Why not? Even if we invest RM300 million to RM400 million there, it is not a problem. We can raise the funds through our own cash flow or borrowings. We could also place out new shares, but we don’t think this is necessary.
What is the sourcing strategy for Cosway?
We prefer the OEMs (original equipment manufacturers) to manufacture for us. We get top manufacturers and suppliers to produce for us, from Taiwan, South Korea, Japan, Europe, Italy, the UK, France and also the US. Let’s say later we go to Turkey, we will also source some products there. We would support the local industry by helping them to export. I am sure there will be some good products that we can sell within that country and also abroad. So we are like an import and export company, but at the same time, we do direct distribution to the consumers. So, when you come to Cosway, you can buy products from all over the world. But of all the products we sell, we label them with our own brand names, such as Bioglo and Oriyen. These brands are owned by Cosway.
Would you not relist Cosway at all, and keep it as BCorp’s core business?
To give recognition to the value, we need to list Cosway. If I keep Cosway in BCorp’s books, everybody would think it is only worth RM300 million to RM400 million. And they are not wrong, because I delisted Cosway (in 2007) on the basis of about RM400 million, and that it had other business inside also, such as Singer. So we delisted it. Two years later, a US investor came [wanting] to buy 10%. So I said RM100 million for a 10% stake, because I valued the company at RM1 billion at that time. The investor said, why so expensive, because we just delisted it for so little money. I said, yeah, that was why I delisted Cosway, because nobody wanted to buy the shares. So if you want to buy, it is RM100 million for 10%. So at the end, he agreed to pay RM100 million for 10%. So straight away, someone had valued Cosway at RM1 billion. Now Cosway is worth some RM4.8 billion, that investor is up 380% on his RM100 million investment.
Cover Story: New model steers Cosway to growth path
This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010
“We are moving away from the red ocean where competition is so fierce and moving to the blue ocean,” says Chuah, the CEO who founded Cosway in 1979 and sold the company to Berjaya Corp Bhd in the 1990s.
In October last year, Berjaya Corp injected Cosway into Berjaya Holdings (HK) Ltd, which is listed on the Hong Kong Stock Exchange.
Chuah’s blue ocean strategy is rather simple. He realised that in the multi-level marketing business model, the hefty commissions paid to the layers of distributors are a heavy cost burden.
Chuah wants to eliminate the layers along the distribution chain. Thus, the birth of Cosway’s “free store concept”. Instead of keeping inventories in a big warehouse waiting for distributors to collect and sell the products, Cosway’s model is to display the products in retail outlets so people see and buy them. The group sells a wide range of consumer products, ranging from skincare products and foodstuff to lingerie and cookware.
Cosway bears all the costs of the shops, including inventories, rental and utility bills, and pays members chosen after training and tests to operate the stores a 5% commission on the sales revenue.
Cosway shops have sprung up in other countries in the region as well since the company adopted the new business model. Already it has more than 1,500 retail outlets in Asia-Pacific, including Hong Kong, Taiwan, South Korea, Singapore, Brunei, Indonesia and Thailand. And it has plans in the pipeline to enter the US, Japan and China markets soon.
Reflecting its speedy expansion, Cosway’s net profit has doubled in two financial years. For FY2009 ended April 30, the group achieved net profit of RM60.7 million versus RM46.6 million in FY2008 and RM30 million in FY07. The group’s gross margin was at 40.7% while net profit margin at 7.8% in FY2009.
Revenue grew to RM774 million in FY2009 from RM578 million in FY2008 and RM442.9 million in FY2007. Between FY2006 and FY2009, Cosway’s net profit recorded CAGR of 45% and revenue 27%.
The group’s expansion plans in new markets will certainly help to lift its earnings in the future should the products sell well.
“We are moving away from the red ocean where competition is so fierce and moving to the blue ocean,” says Chuah, the CEO who founded Cosway in 1979 and sold the company to Berjaya Corp Bhd in the 1990s.
In October last year, Berjaya Corp injected Cosway into Berjaya Holdings (HK) Ltd, which is listed on the Hong Kong Stock Exchange.
Chuah’s blue ocean strategy is rather simple. He realised that in the multi-level marketing business model, the hefty commissions paid to the layers of distributors are a heavy cost burden.
Chuah wants to eliminate the layers along the distribution chain. Thus, the birth of Cosway’s “free store concept”. Instead of keeping inventories in a big warehouse waiting for distributors to collect and sell the products, Cosway’s model is to display the products in retail outlets so people see and buy them. The group sells a wide range of consumer products, ranging from skincare products and foodstuff to lingerie and cookware.
Cosway bears all the costs of the shops, including inventories, rental and utility bills, and pays members chosen after training and tests to operate the stores a 5% commission on the sales revenue.
Cosway shops have sprung up in other countries in the region as well since the company adopted the new business model. Already it has more than 1,500 retail outlets in Asia-Pacific, including Hong Kong, Taiwan, South Korea, Singapore, Brunei, Indonesia and Thailand. And it has plans in the pipeline to enter the US, Japan and China markets soon.
Reflecting its speedy expansion, Cosway’s net profit has doubled in two financial years. For FY2009 ended April 30, the group achieved net profit of RM60.7 million versus RM46.6 million in FY2008 and RM30 million in FY07. The group’s gross margin was at 40.7% while net profit margin at 7.8% in FY2009.
Revenue grew to RM774 million in FY2009 from RM578 million in FY2008 and RM442.9 million in FY2007. Between FY2006 and FY2009, Cosway’s net profit recorded CAGR of 45% and revenue 27%.
The group’s expansion plans in new markets will certainly help to lift its earnings in the future should the products sell well.
Wednesday, March 3, 2010
Free Store Concept
Now its time for you to change your lifestyle.
There's nothing like the freedom of being your OWN BOSS, having everything you want and having the time to enjoy it!
Introducing, new Condo Store by eCosway. eCosway is an international company and a susidiary of Cosway Malaysia (founded in 1997). eCosway also a member of the Berjaya Group.
Condo Store offers you zero cost ownership
eCosway will hand in to you a Condo Store with:-- Provided
– Renovation (RM 100K)
– Shop equipments (Computer, Printer, Fax, A/cond, Banner, S/board, Plasma TV)
– CCTV and Alarm
– Rental, Electricity, Shop Maintenance
– Sample product and promotion
– Staff uniform - Stock on consignment (RM 300K-500K)
- Insurance covered for shop and goods
- Free delivery from warehouse
BONUS!!!
Its a Global Business Ownership
• Global: Malaysia, Singapore, Brunei, Taiwan, Hong Kong, Australia, Indonesia + Thailand + Korea + USA + UK + Japan
• Same Risk-Free Plan
• Same Condo Store Programme
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