Following the launch of OTS Holdings’ IPO of 41 million invitation shares on June 8, KGI Research has released a research note providing some ‘food for thought’ on the company.

OTS, a food manufacturer in Singapore, produces halal and non-halal ready-to-eat and ready-to-cook products, which it sells both locally and through export sales.

In its research note on June 10, the KGI team highlights that OTS is currently developing plant-based foods, with a targeted launch by early 2022. In addition to catering to a rising trend in sustainable consumption, KGI points out that the endeavour is in line with the Singapore government’s “30 by 30” plan to produce 30% of the countries nutritional needs locally by 2030.

“Despite the covid-19 pandemic, we see that the demand for plant-based food products has increased, whereby in May 2020, Deliveroo Singapore has reported a 53% increase in orders for Impossible dishes from restaurant partner,” the team adds.

KGI also notes that OTS intends to expand its business-to-consumer (B2C) customer base through online channels such as Shopee and Lazada. “Revenue in the online food delivery segment is expected to show an annual growth rate (CAGR 2021-2024) of 8.85%,” the team points out.

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See also: Food manufacturer OTS seeks funds to expand into new markets and products

Post-Covid-19, KGI does not expect OTS' revenue CAGR to be impacted much as buyers become accustomed to buying online, which may potentially result in an increase in sales.

KGI also highlights OTS’ push for further overseas sales, based on its existing successful business model in Malaysia. “Based on geographical sales, Malaysia sales increased from S$1.4mil in 2018 to S$2.3mil in 2019 (67%), and further rising to S$7.4mil in 2020 (212%),” the team notes. 

OTS intends to replicate its model in Malaysia in other markets such as the Philippines, where it plans to export products for sale by early 2022. 

“Given the group’s current and expected expansion plans, we expect most of the revenue increase to come from overseas expansion plans,” the KGI team concludes.

In terms of valuations, KGI notes that SGX-listed food manufacturing peers offer a FY2020 dividend yield range between 2.1%-5.3%, with an average PE multiple of around 13 times. In comparison, OTS’s PE multiple stands at 13.8 times for FY2020 but improves to 8.8x based on the trailing 12-month P/E. 

In terms of operational metrics, KGI highlights that OTS has outperformed most of its peers which reported declining revenues from 2019 to 2020, while OTS grew its revenue from $23.9 million in 2018 to $34.5 million in 2020.

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Given the steady revenue growth, KGI  views OTS’ growth prospects look resilient despite the outbreak of Covid-19.

“Additionally, when comparing profit after tax, the group reported a 125% increase from 2019 to 2020, as compared to its peers which reported a 1% to 3% increase or went into losses in 2020,” the team adds.

In terms of risks, KGI says OTS may face inventory risks include livestock being susceptible to an outbreak of diseases or viruses and natural or man-made disasters. 

OTS’ public offer is open from 6pm on June 8 to 12pm on June 15. There is a total of 41 million invitation shares, comprising of 1 million public offer shares and 40 million placement shares, at 23 cents per share.

The shares will begin trading on SGX on June 17, with OTS expected to have a market cap of around $49 million.

Cover photo: OTS Holdings