Ossen Innovation: 59% Of Parent Company Earnings, But Only 4% Of Parent Market Cap

Jul. 19, 2019 12:51 PM ETOssen Innovation Co., Ltd. (OSN)21 Comments
John Sheehy profile picture
John Sheehy
753 Followers

Summary

  • Pujiang International, the 66% owner of specialty steel maker Ossen Innovation, listed on the Hong Kong Stock Exchange in May 2019.
  • Ossen Innovation provides 59% of Pujiang’s earnings and 56% of its net assets.
  • Pujiang has a market cap of US$362mm and is valued at 21 P/E and 1.7 P/B.
  • Ossen has a market cap of US$15mm and is valued at 1.5 P/E and 0.1 P/B.
  • The valuation gap shows that eligible small cap Chinese companies should be listed in Hong Kong rather than New York.

Ossen Innovation (NASDAQ:OSN) makes high performance pre-stressed steel used in large infrastructure projects, especially bridges. Ossen is 66% owned by Pujiang International (HK:2060) which completed an IPO on the Hong Kong Stock Exchange in May 2019 (LINK). A large part of the valuation of Pujiang shares on the HKEX is attributable to the OSN business which has a very low valuation on Nasdaq.

Pujiang’s successfully listing means there is no benefit to Ossen’s continued existence as an independent publicly traded company. The simplest and most favorable outcome for Ossen shareholders would be a cash or stock acquisition of OSN by Pujiang. However there is a risk that Pujiang management may attempt to impose an unfavorable outcome on Ossen’s public shareholders.

The disparity between the market valuations of Ossen and Pujiang shows that the HKEX is a superior venue for small cap Chinese companies that meet its listing criteria. An HKEX listing provides better corporate visibility, better long-term access to financing, and reduces risk from changes to US tax and regulatory policies.

Topics:

  • Pujiang/Ossen Group Structure
  • Pujiang/Ossen Valuations
  • Benefits to Ossen from the Pujiang IPO
  • The Failed Ossen Buyout Offer
  • Implications for Other US-listed Chinese Companies
  • Investment Considerations

Additional information about Ossen is available in its SEC filings, website, and May 2018 Investor Presentation. Additional information about Pujiang is available in its HKEX filings and website.

PUJIANG/OSSEN GROUP STRUCTURE

There is no uncertainty about the relationship between Pujiang International and Ossen Innovation. Pujiang’s Global Offering document (LINK) shows the position of Ossen Innovation and its public shareholders within the group (colored notations added for clarity):

Pujiang’s Income Statement clearly identifies the portion of income attributable to the public shareholders of Ossen Innovation:

PUJIANG/OSSEN VALUATIONS

Data as of 7/16/19:

Group Valuations

Applying Pujiang’s valuation multiples to OSN suggests a fair value over $30/ADS

This article was written by

John Sheehy profile picture
753 Followers
"Advice is a dangerous gift, even from the wise to the wise, and all courses may run ill."

Disclosure: I am/we are long OSN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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