• With nearly 30-years of experience being in the industry, OBHB primarily involvedin providing manufacturing services for F&B and dietary supplements to third-partybrands as well as its own in-house brands.

• Moving forward, we project a 3-year earnings CAGR of 17.6%, with core PATexpected to reach RM7.9-10.2m over the next three years, largely supported by (i)the optimized layout of its manufacturing plant, along with the purchase of newmachinery and (ii) robust outlook in the global dietary supplements and growingtrend in aging population in Malaysia.

• We assign a fair value of RM0.385 (upside of 60.4% against IPO price of RM0.24) for OBHB. Our valuation is derived by pegging a P/E of 18x to the mid-FY26f EPS of 2.13 sen. We believe the P/E of 18x is fair, given that the average P/E of the closest peers stands at 17.6x.

Investment highlights

Realignment with acquisition… Due to limitations in the layout of its existing Selayang factory, the machines are not optimally aligned, and there is limited space for workers to perform manual tasks. This has resulted in inefficient use of time and manpower. To address this, the group acquired a piece of land in Serendah, Selangor, with plans to construct a new factory covering approximately 105k sqft. This new facility will allow for a more dynamic manufacturing layout and better utilization of machinery and manpower, creating a more linear and continuous workflow compared to the current setup. The construction of this factory will be financed with c.RM10m from IPO proceeds, which we estimate will be utilized evenly over the next three years.

…adding on capacity with new machineries. With the optimized layout at the new Serendah factory to be operations by 1H26 and the acquisition of new machinery, including (i) a multilane sachet packing machine, (ii) two freeze-dry machines, (iii) an extraction and concentration machine, (iv) a stability chamber, (v) a supercritical carbon dioxide extraction machine, and (vi) a gelatine loading tank, OB Holdings is well-positioned to capitalize on the robust outlook for the global dietary supplements market and the growing aging population in Malaysia.

E-commerce boosts revenue. E-commerce platforms contributed roughly 50% of OBHB’s house brand revenue. By leveraging a multi-channel distribution strategy, including platforms like Shopee, Lazada, Facebook, and TikTok, OBHB increases its reach and visibility. This strategy ensures OBHB’s products, such as fortified food and dietary supplements, are accessible to a broader online audience, strengthening its market position.

End-to-end solutions for third-party brands. OBHB offers full-service solutions for third-party brand owners, managing the entire product lifecycle—from raw material processing to product development, branding, manufacturing, and delivery. This comprehensive service streamlines operations and positions OBHB as a key player in the dietary supplements and food industry.

Multiple certifications obtained. OBHB complies with international standards, including FDA approval, ISO 9001:2015, NASAA organic certification, GMP, and Halal certifications, among others. These certifications reflect OBHB’s commitment to highquality and safe products.

Rising global dietary supplements market. According to the IMR by Smith Zander, the global dietary supplements market is expected to grow in tandem with the rising trend of non-communicable diseases (NCDs). The increasing number of chronic diseases, such as (i) cardiovascular diseases, (ii) cancers, (iii) chronic respiratory conditions, and (iv) diabetes, will drive global demand for health supplements, as consumers take a more proactive approach to their health—especially after recent health concerns like the Covid-19 and Mpox outbreaks. Zooming in on Malaysia, the country has an aging population, with the number of individuals aged 65 and older increasing from 2.10 million to 2.47 million, at a CAGR of 3.3% from 2018 to 2023, which should drive demand for health supplements as awareness of proper nutrition rises.

Company background

Through its wholly-owned subsidiaries, the group primarily provides manufacturing services for F&B and dietary supplements to third-party brands, as well as its own inhouse brands.

Business overview

Provision of manufacturing services (62.4% of FY24 revenue). OBHB provides end-toend manufacturing services for fortified food and beverages (F&B) and dietary supplements to third-party brand owners. This includes product development, product registration, sourcing, manufacturing, packaging, and delivery.

Sales of in-house brands products (23.9% of FY24 revenue). The group also develops and produces its own branded fortified F&B and dietary supplements, marketed under names such as Bonlife, GoHerb, Zen Night, Sleepin’ Beaute, EZ, Beyoute, Zen Youte, and Zenliv. The group’s in-house sales and marketing team promotes brands like Bonlife, Sleepin’ Beaute, and Zen Night, while other brands are marketed through external agents.

Trading of milk powder and other activities (13.8% of FY24 revenue). OBHB trades surplus milk powder, a byproduct of its manufacturing process, and sells it in bulk to manufacturers and distributors. It also provides ad-hoc services such as laboratory testing, freight services, and selling surplus raw materials and packaging supplies.

Financials

Continuous increase in revenue. The group reported revenue of RM50.9m in FY24, an increase of 9.6% YoY, mainly due to the increase in sales of house brands products segment by RM3.44m or 39.54% to RM12.14m for FY24 (FY23: RM8.70m), as well as revenue from the trading of milk powder and other activities segment which increased by RM4.02m or 134.90% to RM7.00m for FY24 (FY23: RM2.98m). Core earnings decreased by 5.2% YoY, reaching RM6.3m.

Earnings growth to be expected. Moving forward, we project a 3-year earnings CAGR of 27.6%, with core PAT expected to reach RM7.9m, RM8.8m, and RM10.2m over the next three years, largely supported by (i) the optimized layout of its manufacturing plant, along with the purchase of new machinery and (ii) robust outlook in the global dietary supplements and growing trend in aging population in Malaysia.

Valuations

We ascribe a fair value of RM0.385 (an upside of 60.4% against IPO price of RM0.24) for OBHB. Our valuation is derived by pegging a P/E of 18x to the mid-FY26f EPS of 2.13 sen. We believe the P/E of 18x is fair, given that the average P/E of the closest peers (Fig #7) stands at 17.6x.

Investment risks

May be liable for its marketing agents’ actions. Any marketing agents fail to uphold their quality of services, may reflect negatively on the group’s brand, thus resulting in negative perception among customers towards its brand as well as the potential loss of existing customers.

Dependent on necessary licenses, approval and permits. Any failure to maintain or renew its major licences, permits and approvals in the future could materially and adversely affect its business operations and financial performance.

Exposed to foreign exchange fluctuation. Any unfavourable movements in exchange rates may affect the group’s profit margins, as over 40% of the group’s purchases in FY24 are transacted in foreign currency.

Dependent on key senior management. Discontinuation of service of the key senior management may disrupt key decision making within OB’s business operations.

Source: Mplus Research - 2 Oct 2024