OTS Holdings - SAC Capital 2022-03-02: Weak 1H22, But Outlook Improving With Re-Opening

OTS HOLDINGS LIMITED (SGX:OTS)

OTS Holdings - Weak 1H22, But Outlook Improving With Re-Opening

OTS (SGX:OTS) had a weak 1H22, with revenue down 11.2% y-o-y and net profit fell 56.9% to S$1.2m. Revenue and net profit only met 37% and 23% of our FY22E estimates.
The y-o-y comparison was skewed as 1H21 (Jun-Dec 20) was the peak of first COVID wave, when canned consumer products enjoyed brisk sales from national stockpiling and pantry stocking. But OTS's 1H22 sales were also hit by weak consumer sentiment in Malaysia, which indirectly led to competitive price dumping in the Singapore market.

Still, OTS's Singapore sales rose 3.9% y-o-y to S$12.8m while Malaysian sales fell 35.8% y-o-y to S$4.8m. Gross margin fell 3.8% pt to 27.7%.

Though accounting for about 26% of group’s sales, Malaysia is a strategic growth market due to its size. OTS is positioning to penetrate the East Malaysian states of Sabah and Sarawak in 2022. It also plans to tap on its distribution network to sell third-party products.
Malaysia exited mobility restrictions in late 2021, and gradually lifting border controls. These could bring the return of economic activities and lift consumer spending. 4Q21 GDP rebounded to +3.6% and the authority projects 6.5% growth in 2022. Private consumption, which rose by a mere 1.9% in 2021, after contracting 4.3% in 2020, has room to improve. Unemployment rate improved to 4.2% in Dec 2021, though still higher than pre-COVID average of 3.5%.

The Indonesia JV was unable to make progress in capacity and product expansion due to travel restrictions in 1H22. This is likely to improve from this year as Indonesia is also opening up. OTS has appointed distributors in the Philippines and sales are likely to commence in 2022.

We have lowered our earnings estimates for OTS by 41.3% in FY22E and 16.8% in FY23E to take into account weaker Malaysian sales and continued pricing pressure in Singapore. Our DCF-derived target price for OTS (COE: 10.8%) is also revised to S$0.29 (previously S$0.40) to reflect higher risk-free rate of 2% and slower growth.
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Maintain BUY rating on OTS.

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2022-03-02

SGX Stock Analyst Report BUY MAINTAIN BUY 0.29 DOWN 0.400