OTS Holdings IPO: What Investors Should Know About This Food Manufacturer's Listing
OTS Holdings, the owner of heritage brand “Golden Bridge”, is set to go public in the Singapore stock market.
According to the company, one of its earliest hit products is the XO Special Lean Wax Sausages, and till today, it remains one of its iconic products.
Apart from the Golden Bridge brand, the company owns five other brands under its umbrella. So with that, let’s find out more about OTS Holdings initial public offering (IPO) and its valuation.
TL;DR: OTS Holdings IPO Deets
Here are some key highlights about the OTS Holdings IPO:
- OTS, which was founded in 1993, is a food manufacturing group that sells both non-halal and halal products under six house brands.
- Its food products have been marketed and sold in more than 25 countries, including Brunei, Hong Kong, Myanmar, India and as far as the European Union.
- Over the past three financial years, its revenue has grown at an annualised rate of 20%, while its net profit increased at a faster clip of 58% per year.
- OTS plans to use most of the IPO net proceeds to expand its overseas operations.
- The IPO price is set at S$0.23 per share, and the closing date and time for the offering is 15 June 2021 at 12pm.
- At its IPO price, OTS sports a price-to-earnings ratio of 8.7x and a projected dividend yield of 5.7%.
More About OTS Holdings
OTS was started in 1993 and is a food manufacturing group. It mentioned in its IPO prospectus that it has a strong niche in ready-to-eat and ready-to-cook meat products in key markets of Singapore and Malaysia.
OTS owns both non-halal and halal products under six house brands, such as Golden Bridge, Kelly’s, and El-Dina.
Golden Bridge and Kelly’s, according to OTS, are established household names within the ready-to-eat and ready-to-cook meat products market in Singapore and Malaysia.
To tap into the growing halal food market, the group started a retail brand — El-Dina — and a foodservice brand — Kizmiq — under its subsidiary of Ellaziq Private Limited, a halal food specialist.
Furthermore, OTS produces seasonal food products (think of roast meats, hams and pork knuckles) during festive periods such as Chinese New Year and Christmas.
OTS mentioned in its IPO prospectus that it believes to be “one of the largest meat product manufacturing companies in Singapore with the capability to manage and process as many as four product categories – chilled, frozen, dried and shelf-stable ready-to-eat and ready-to-cook meat products – within one single facility”.
On top of selling its products in major supermarkets, convenience stores, and restaurants in Singapore and Malaysia, it also sells its products via e-commerce platforms and its website.
OTS’ food products have been marketed and sold in more than 25 countries, including Brunei, Hong Kong, Myanmar, India and as far as the European Union.
The following shows OTS’ key financial performance from FY2018 to FY2020 (the company has a 30 June year-end):
|FY2018||FY2019||FY2020||Compound annual growth rate|
|Revenue (S$' million)||23.9||26.3||34.5||20.2%|
|Gross profit (S$' million)||5.4||6.7||10.2||37.4%|
|Gross profit margin||22.3%||25.6%||29.7%||N/A|
|Net profit (S$' million)||1.4||1.6||3.6||57.9%|
|Net profit margin||6.0%||6.0%||10.3%||N/A|
|Cash flows from operating activities |
For the first half of 2021 (HY2021), revenue grew 44% year-on-year to S$14.6 million, while net profit more than tripled to S$2.9 million.
Overall, the company has shown stable growth in both its top-line and bottom-line.
Now let’s turn our attention to OTS’ balance sheet, which is healthy. As of 31 December 2020, it carried S$4.9 million in cash and cash equivalents, and S$4.9 million in total borrowings.
In terms of geographical segment breakdown, 73,8% of OTS’ FY2020 revenue came from Singapore, 21.5% from Malaysia, and the remaining 4.7% from what the group classifies as “Others”.
Here are some of OTS’ business strategies and future plans as highlighted in its IPO prospectus:
- Launch new plant-based food products by early 2022
- Expand its business overseas in Malaysia, Indonesia and the Philippines
- Improve and/or expand production efficiency and capacities to enable the company to remain cost-competitive
- Expand its business through acquisitions, joint ventures or strategic alliances
OTS Holdings IPO Details and Timeline
A total of 41.0 million shares will be on offer at a price of S$0.23 apiece.
Of the total shares offered, 40.0 million will be placed out to certain investors, and 1.0 million will be offered to the public.
Post-IPO, OTS is expected to have a market capitalisation of S$49.2 million based on a share capital of 214 million shares.
The group is looking to raise gross proceeds of S$8.1 million and net proceeds of S$6.6 million.
OTS plans to use most of the proceeds to expand its overseas operations, including the initial investment and set up costs in the Philippines (S$2.5 million or 38% of net proceeds).
30% of the net proceeds, or S$2 million, is allocated for improvement and/or expansion of production efficiency and capacities.
Around 8% of net proceeds, or S$0.5 million, will be used to develop new products and for research and development. The S$1.6 million will be for general working capital purposes.
The IPO closes on 15 June 2021 (12pm), and trading is expected to commence on 17 June 2021 (9am).
|OTS Holdings IPO||Details|
(of which 1,000,000 shares are for the Singapore public)
|Opening time and date of IPO||8 June 2021, 6pm|
|Closing time and date of IPO||15 June 2021, 12pm|
|Balloting of applications for IPO||16 June 2021|
|Commence trading||17 June 2021, 9am|
OTS’ managing director, Ong Bee Chip, will own 79.3% of the company, both directly and indirectly, after the company goes public.
Risks to Note for OTS Holdings
OTS has both customer and supplier concentration risks. For example, in 2020, its largest customer (NTUC) accounted for 18.5% of its revenue, but that figure has come down from 27.6% in 2018. Nonetheless, customer concentration is still something to take note of.
In terms of supplier concentration, in 2020, five customers made up 54.6% of OTS’ total purchases, with one supplier Ronald A. Chisholm Limited taking up 24.1% of that year’s total purchases.
Other risks highlighted in OTS’ IPO prospectus include:
- The highly competitive nature of the food industry where OTS faces competition from ready-to-eat and ready-to-cook meat products
- Border restrictions and global supply chain disruption arising from COVID-19 affecting the average shipping time for its raw materials and products
- The dependency on foreign employees (around 49% of its employees in Singapore are foreign employees)
Valuation of OTS Holdings
At an IPO price of S$0.23 and post-IPO share capital of 214 million shares, OTS would be selling at a price-to-earnings (P/E) ratio of 8.7x, based on its earnings per share of 2.63 Singapore cents for the 12 months ended 31 December 2020.
OTS does not have a dividend policy. However, its board intends to recommend and distribute dividends of at least 50% of its net profit for FY2021 and of at least 40% of net profit for FY2022.
Assuming the company maintains its last 12 months EPS of 2.63 cents for FY2021 and based on a 50% dividend payout ratio, OTS’ projected dividend for FY2021 would be 1.32 Singapore cents per share. Using the IPO price of S$0.23, it translates to a dividend yield of 5.7%.
In comparison, data from Shareinvestor shows that Singapore-listed stocks in the food industry sector carry an average P/E ratio of 19x and have an average dividend yield of 2.8%.
This could suggest that OTS is undervalued at its IPO price of S$0.23. Having said that, potential investors should do their own due diligence before investing in the company, including being aware of all the risks stated in the company’s IPO prospectus.
How to Apply for OTS Holdings IPO
Those interested in the IPO can apply through ATMs and internet banking websites of DBS Bank, OCBC and UOB.
They can also do so via the online portal of iFAST Financial or through the mobile banking interface of DBS Bank and UOB.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.