Question:

Describe one strategy engaged by Bio Osmo Berhad as reported in the article given. Discuss whether

the trends suggest that the strategy will be working well.

Two-pronged move for Bio Osmo

Bottled water manufacturer Bio Osmo Bhd has pressed the reset button and wants to start over by

enlarging its presence as hotelier Impiana Hotels Bhd.

The name is indicative of the future direction of the company. Bio Osmo has divested its water business

completely and, moving forward, we are focusing on hospitality, Bio Osmo executive director Azrin

Mirzhan Kamaluddin tells FocusM.

Recall that after bleeding financially for nine years due to narrow margins from its bottled water

business, Bio Osmo completely divested that loss-making segment at the end of last year while its

rebranding to Impiana occurred after a reverse takeover which saw the injection of Impiana Groups

hotel assets into the company.

This naturally positions the company as a lifestyle and services brand but Azrin says the company will

focus on two major segments: acquiring assets and hotel management with a 50:50 product mix.

This strategy, according to Azrin, would help the company differentiate itself from its peers. In this way

we are different. The management company is part of the injection so Impiana Hotels Bhd will be seeing

both the hotel ownership and hotel management play.

On one side, its asset heavy, so the gestation period is longer but once this fully matures, the capital

appreciation and earnings will be strong. On the management side, its asset-light and purely services.

So, this is a good mix to have at Impiana, he says.

Two-pronged strategy

Currently, on the hotel management arm, Impiana will manage two hotels: Impiana Senai and the soon

to-be-launched Impiana Seoul in South Korea.

The management play is quite small. In terms of managing hotels not owned by Impiana, there will

only be two, he says, referring to the Senai and Seoul ventures.

But we aim to grow the management. Its asset-light, relatively risk-free but the earnings will never be

as much as the earnings of the hotel ownership segment. However, its a good mix and a good hedge.

Assets-wise, Impiana owns hotels and private villas both in the country and the region, from Kuala

Lumpur to Phuket and Bali.

The group, says Azrin, is looking into injecting these overseas properties into Impiana in the near future.

But that does not mean the group is not on the lookout for properties with good locations.

We are generally not a yield investor but value investor when it comes to acquiring properties. We will

go in when we see that its not performing as well as it should be, but if we manage it, we can extract a

better performance from that asset, Azrin says.

The qualities he will be looking for in an asset, aside from the right price, are location as well as market

potential.

These are not easy to find but when such properties do come on the market, they are snapped up very

fast, he adds.

This, Azrin says, is one of the reasons for Impiana to be a listed company. That access to capital

markets. Because if you are trying to do with bank funding, it will take three to four months for funding

to be approved and by then, then property is gone.

So, does that means Azrin is eyeing the Annexe towers owned by Telecom Malaysia Bhd (TM)? It is a

pretty good location but we would rather complete this transaction with Impiana Hotels Bhd first and

really put it on a solid footing before looking further, he says.3

The Annexe 1 and 2 tower blocks occupy leasehold plots with 53 years left to their lease. TM says the

reserve price range for its properties is between RM273.4 mil and RM312 mil with options to either buy

the buildings without tenants or with different tenancy agreements.

But unless something too good to be true comes up, Ill need to take a breather to assess the situation

for a few months first, says Azrin.

Slower tourist growth

But the timing for Impiana to debut on the Bursa Malaysia may seem questionable. Currently the only

hotel play on the bourse is Shangri-La Hotels Malaysia Bhd. But Shangri-Las latest earnings werent

impressive.

Net profit for the fiscal year ended Dec 31, 2018 fell 2% to RM70.55 milfrom RM72.19 mil the preceding

year. This was due to a higher net charge for non-operating items of RM17.82 mil versus RM5.85 mil

the year before, as well as lower contributions from the groups resorts in Penang and Sabah.

Looking forward to 2019, the business environment for the groups hotel operations as a whole is

expected to remain soft, with slower growth in both leisure and corporate level amid continuing

economic uncertainties, Shangri-La said in a Feb 28 Bursa filing.

In fact, over the past three years, Malaysian tourism has faced a challenging time with fewer inbound

tourists.

According to Tourism Malaysia data, tourist arrivals fell from 26.76 million in 2016 to 29.95 million in

2017, and then down again to 25.83 million last year. The drop last year was mainly due to a 14.46%

reduction in arrivals from Singapore.

Well-positioned

But Azrin is confident that Impiana is well-positioned for profits. He points to two tragedies-the

disappearance of Malaysia Airlines Flight MH370 in 2014 and the Phuket boat accident in 2018-as case

studies of how Impiana was able to weather externalities.

Even when MH370 happened and the China market fell, we as in Impiana KLCC actually grew our

China business that year. In fact, it was the fastest growing source market that year simply because, at

that time, KLCC was a little bit down because oil & gas was down.

As you know, Impiana KLCC is a very oil & gas dependent market. The same with the Phuket boat

tragedy. China boy-cotted Phuket. Even duty-free operator King Power suffered badly, but we actually

grew our China arrivals at our Impiana hotels on the island, he points out.

The secret, Azrin observes, is a combination of business smarts and staying nimble.

You diversify your focus of marketing from corporates to leisure. You start going to more travel trade

shows, get more leisure-based agents to sell.

That what we did with Impiana KLCC. Same approach with Phuket. We found out that individual

travellers were still walking into our hotels.

So, we increased our digital marketing, tried to reach them directly, tried to sell more events based

packages such as weddings.

Even Chinese customers, if they plan to get married on the beach in Phuket and honeymoon in Phuket,

just because of a boat tragedy they are not going to cancel their wedding.

So, there are always these pockets of opportunity in any grey cloud. The silver lining is there for one

to find, he says. Indeed, only time will tell if Azrin is on the money of if he would be walking into a grey

cloud.