OB Holdings Berhad (OBHB, 0327) is set to debut on Bursa Ace Market today. OBHB specialises in manufacturing of fortified Food & Beverages (F&B) and dietary supplements for third-party brands, and selling its own labels, including Bonlife, GoHerb, and Zen Night. Additionally, OBHB provides contract packing services for products such as milk powder, tea leaves, and liquid chlorophyll, and engages in milk powder trading and related activities. BUY with a fair value of RM0.29 based on FY26F PER of 13x, a 25% discount to its local industry peer’s average PE due to its smaller market capitalisation.

OBHB stands out prominently within the fortified F&B and dietary supplement industries backed by over 29 years of experience and a proven ability to provide end-to-end manufacturing services. Known for its high-quality, specialized formulations tailored to diverse demographics, OBHB offers comprehensive solutions from product development, sourcing of raw materials and manufacturing to packaging hence adding significant value for clients. The company’s strong in-house brands, such as Bonlife and GoHerb, further boost its market’s presence and direct consumer engagement, setting it apart from competitors.

The company is planning to expand its operation which includes the construction of a new manufacturing facility in Serendah coupled with the purchase of new machines, which will significantly improve its manufacturing efficiency. The new setup will increase daily sachet powder output from 120,000 in FYE24 to 400,000 and increase vegetable softgel capsule production from 136,000 in FYE23 to 195,000. Additionally, OBHB plans to establish an advanced lab at the Serendah site to enhance product innovation and support in-house probiotic strain culturing.

The industry outlook for OBHB is strong, supported by rising health awareness and the growing impact of non-communicable diseases like diabetes and heart disease. Malaysia’s fortified F&B and dietary supplement market is set for steady growth, driven by increasing disposable incomes, urbanization, and an aging population. OBHB is well-positioned to leverage e-commerce trends and digital marketing to capture this demand. Additionally, its commitment to high regulatory standards ensures compliance and provides a strategic advantage in a complex market.

We expect OBHB’s earnings to grow at CAGR of 9% for FY24-FY27F, underpinned by (i) rapid-growing house brand, (ii) longstanding business relationships, (iii) advanced infrastructure supporting future growth. OBHB' balance sheet is manageable with net gearing of 0.3x. As part of the IPO proceeds will be used for repayment of borrowings, we expect the company’s net gearing will be reduced to below 0.1x post IPO.

Source: Rakuten Research - 29 Oct 2024

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