SAC Capital is initiating its coverage on homegrown food manufacturer OTS Holdings with a “buy” and a target price of 40 cents.
See: Food manufacturer OTS seeks funds to expand into new markets and products
The recently listed OTS Holdings manufactures and distributes process meat products under its house brands Golden Bridge and Kelly’s in Southeast Asia. The ready-to-eat and ready-to-cook meat products are available in four formats: chilled, frozen, dried and shelf-stable, and sold in supermarkets and convenience stores, through wholesalers and e-commerce platforms, and to the foodservice sector.
In its latest FY2021 ended June results, earnings were 15.8% lower y-o-y at $3.0 million due to IPO expenses. Earnings excluding IPO expenses would have been 13.9% higher y-o-y at $4.0 million. Revenue for the period was 11.5% higher at $38.5 million.
In a Sept 2 report, analyst Peggy Mak notices some drag in FY2021 due to the Covid-19 pandemic. “The headwinds were: Singapore’s stockpiling drive resulted in orders being front-loaded to 2HFY2020 and 1HFY2021; production disruption from labour shortage. OTS is accelerating automation to cut labour content; higher costs to retain workers; restrictions on dine-in lowered demand from foodservice operators; supply chain bottleneck held back marketing push into the overseas markets.”
To that end, Mak points out some growth drivers for the group moving forward.
Firstly, the greater market penetration into Malaysia, the Philippines and Indonesia as the pandemic subsides and these economies rebound is expected to help the group’s growth. OTS made inroads into Malaysian foodservice sector in early 2020 before Covid-19 hit. It plans to commence sales in the Philippines in Nov 2021 to take on competitor brand SPAM. In Indonesia, it has a 50:50 JV with Salim Group to produce and sell processed meat products.
Secondly, the group is expected to see growth from its distribution of third-party food products through its regional distribution network.
Lastly, the group has announced that it will be launching an in-house developed plant-based protein alternative products in Apr 2022, to tap on the trend towards healthier lifestyle. This should help the group capture a new market for growth.
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Overall, Mak notes that branded food companies command a premium taking into account: brand recognition and customer stickiness; food being a resilient sector; and increased emphasis on food security.
As at 4.20pm, shares in OTS Holdings are trading at 30 cents or 12.0 times FY2022 earnings with a dividend yield of 4.1%.
Photo: OTS Holdings
