OTS Holdings - SAC Capital 2021-09-02: Home Grown Branded Food Vying For The Region


OTS Holdings - Home Grown Branded Food Vying For The Region

  • Established in 1994, OTS produces and sells ready-to-eat and ready-to-cook meat products under house brands such as “Golden Bridge” and “Kelly’s“ in SE Asia. The 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.

OTS - An established local brand for processed meat products.

  • OTS Holdings (SGX:OTS) is a meat product manufacturing company. Its products are ready-to-eat (RTE) and ready-to-cook (RTC) and grouped into four types: chilled, frozen, dried and shelf-stable. The RTE and RTC food categories are gaining popularity with smaller household size and pursuit of convenience and ease of preparation. The shelf-stable products are also preferred for easy storage and longer shelf life.
  • OTS carries more than 1,100 SKUs across 13 main product types under 6 house brands, catering to both halal and non-halal consumer segments. OTS also produces seasonal food products such as roast meats, hams and pork knuckles during festive periods such as Chinese New Year and Christmas.

OTS's retail brands

  • OTS's retail brands are “Golden Bridge”, “Kelly’s” for non-halal products, and “El-Dina” for halal products. For the foodservice sector, the products are sold under house brands “GoldenLion” and “Orcid” for non-halal, and “Kizmiq” for halal items.
  • The products are sold in major supermarkets, convenience stores, provision shops, hotels and restaurants in Singapore shelf life.

OTS's sales channels

  • OTS sells through all channels, broadly classified as modern trade, general trade, foodservices and others.
    • Modern trade consists of supermarkets and hypermarts, such as NTUC and Sheng Siong Indonesia and the EU. The EU-Singapore free trade agreement, effective Nov 2019, removes tariffs on certain Singapore products exported to EU over 3 to 5 years (by Nov 2024). The UK has a similar agreement effective 1 Jan 2021. OTS’s plants are 2 out of 3 meat processing plants in Singapore that have obtained approval to export meat products to the EU.

COVID drag on OTS's FY21 (revenue +11.5%, EBITDA +8.9%).

  • COVID-fuelled pantry flow generated from operations was S$7.1m, or S$0.033/share. With S$7.7m raised from the IPO in Jun 2021, OTS's net cash at Jun 21 amounted to S$11.5m (or S$0.054/share). ROIC was 20.1%, well ahead of the Singapore listed branded food producers.
  • We expect sales to grow by 32% in FY2022 (Jun) as channel inventory at the modern and general trade in Singapore normalizes and re-stocking resumes, and demand from food service operators grow with greater relaxation of dine-in and tourism. A higher vaccination rates in the regional markets could see a rebound in economic activities. With high operating leverage, we expect EBITDA margin to rise by 0.6ppt to 15.7% and net margin to recover to 10.3% (FY21: 7.8%).

OTS Holdings - The headwinds

  • The headwinds were:
    1. Singapore’s stockpiling chain bottleneck held back marketing push into the overseas markets.
  • OTS's FY21 NPAT grew 9.6% if we stripped out wage grant and IPO expenses.

OTS Holdings - The growth drivers

  • OTS's growth drivers are
    1. Greater market penetration into Malaysia, the Philippines and Indonesia as pandemic trend towards healthier lifestyle.

Heading off competition.

  • Despite its smaller size, latest ROIC of 20.1% is comparable with peers (Hormel 18.3%, Shanghai Maling 23.3%, Danish Crown 7.1%). EBIT margin of 10.8% is slightly lower than Hormel’s 11.5%, but above Maling’s 4.4% and Crown’s 4.5%.

OTS Holdings - Valuation

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2021-09-02
SGX Stock Analyst Report BUY INITIATE BUY 0.40 SAME 0.40