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

As such, Ong started a logistics business, then a machinery business, a textile printing venture, a property investment company as well as food manufacturing with OTS Holdings, which specialises in making lup cheong (Chinese sausages) sold under the Golden Bridge brand.

When the late Ong retired a successful man, he rewarded himself a Bentley that he drove in his final years. Having progressed from a lorry to a luxury sedan, his children now plans to carry on his legacy and grow the company their father had built even further.

Image caption: From left: Ong Bee Chip, managing director of OTS; Ong Chew Yong, executive director of OTS; and Ong Bee Song, sales director of Golden Bridge and Ellaziq Singapore

OTS is now seeking a listing on the Catalist Board of the Singapore Exchange (SGX). On June 8, the company launched its IPO of 41 million shares priced at 23 cents each, which will give the company a market value of $49.2 million, according to its post-issue base of 214 million shares.

The listing will see OTS raise gross proceeds of $9.43 million but subtracting proceeds from sales of vendor shares and listing expenses, the company’s net proceeds from the listing will be $6.56 million.

Of the net proceeds, OTS plans to use $2 million to boost its production facilities. It will also allocate $2.5 million for its overseas expansion, $0.5 million for product R&D and set aside $1.56 million for general working capital purposes.

Of the 41 million shares, just one million shares are available for the retail tranche while the remaining 40 million shares will be offered to institutional investors, including 2.2 million for management, employees, business associates and others who have contributed to the OTS over the years. SAC Capital Private is the sponsor, issue manager, underwriter and placement agent for OTS’s IPO. Subscription will close on June 15 and trading is likely to begin on June 17.

From sausages to plant-based meat

Daughter Ong Chew Yong recalls how her father was very focused on building businesses capable of sustaining long-term growth and riding on evergreen trends. For example, the textile printing business and OTS were founded because there was always a need for clothes and people have to eat.

Today, the businesses are managed by 10 of Ong’s children and his other descendants.

“Some siblings are in the machinery business while others are in the textile printing business,” says Chew Yong, who runs OTS together with two brothers Bee Chip and Bee Song as managing director and sales director respectively.

Many brands of Chinese sausages are available in the market but they mostly taste similar. When OTS was established in 1993, Ong, who enjoyed drinking XO brandy, hit upon the idea of infusing the sausages with XO flavours. Together with his son-in-law Ang Tik Bee, who owns a meat company, they refined the taste before introducing this novel Western twist to a traditional foodstuff.

“We sold lup cheong when we first started and that has lasted until now,” says Bee Chip, adding that the company has since become a household name and expanded its offerings to include Taiwanese sausages, Western food products, canned goods, Halal meat products and even soon-to-be-launched plant-based meat products.

Upon completion of the IPO, the three siblings will remain the controlling shareholders of OTS. They will be holding their shares via an entity called BCS which will have a stake of 171.7 million shares, or 74.6%, in OTS. BCS, in turn, is held by Bee Chip, Bee Song and Chew Yong with respective stakes of 50.0%, 33.3% and 16.7%.

For the most recent FY2020 ended June 2020, OTS reported earnings of $3.6 million, more than double that of $1.6 million in FY2019. Revenue increased by 27% to $34.5 million from a year ago due to stronger demand across all business and geographical segments.

OTS’s four business segments in detail

OTS’s revenue is divided into four business segments — modern trade, where its products are retailed in supermarkets; general trade, where the products are retailed in wholesalers and convenience stores as well as provision shops; food services, where the products are sold to F&B players and the hospitality sector; and others, which includes overseas customers via export sales and to customers through business-to-customer (B2C) or business-to-business (B2B) arrangements with e-commerce platforms.

The company’s largest revenue contributor is from the general trade segment, which accounted for 41% of its overall revenue for FY2020. This was followed by modern trade which contributed 32% of revenue, food services at 18% and others at 10%.

Although sales have enjoyed consistent growth despite the Covid-19 pandemic, OTS does not generate much recurring revenue from its clients. For instance, supermarkets are only required to sign a one-year agreement to carry its brands. NTUC Fairprice and Sheng Siong are some of OTS’s major customers, with sales from both supermarket operators contributing some 26.4% of overall revenue.

The way CFO Toh Kiam Hwee sees it, OTS’s brand’s reputation is its recurring revenue. “As long as we manage our brand and quality, there will definitely be demand for our products and when all the demand comes in, it will be our recurring revenue,” he says.

Currently, OTS is largely present in the Singapore and West Malaysia markets with two manufacturing facilities in Singapore and one in Indonesia. Having built its market here, OTS plans to mark out its next growth phase by going deeper and wider into the regional markets.

When OTS first entered the Malaysian market, it did so by setting up its own distribution network instead of relying on local distributors.

The way Bee Chip sees it, distributors will not care as much about the brand as themselves. “We wanted to rely less on distributors while increasing the competitiveness of our products in the market,” he says, adding that by doing so, OTS gains better control in terms of distribution and marketing of its products.

“After our success in Malaysia, we studied the Philippines market and realised that we can do the same — set up our own subsidiary there to handle our brands, do the importation and the distribution,” adds Bee Chip, who notes that there is only so much a third-party distributor will do to help with the product’s marketing and branding, as most are only focused on profit margins.

OTS’s subsidiary in the Philippines has already been set up and distribution in the Philippines market will begin by the end of this year. The market is expected to make its maiden contribution to the company’s FY2022 results.

Planning the next moves

OTS is also jumping onto the plant-based meat bandwagon and is about to launch its brand new range of ready-to-eat plant-based meat products.

“Plant-based protein has been gaining demand in the market recently and Covid-19 has accelerated this demand,” says Chew Yong. “In the market now, most of the plant-based meat products are frozen and do not have a long shelf life. They also have to be cooked, which takes away the convenience. But our R&D team has formulated a canned ready-to-eat plant-based meat product that can be kept for about three years. This shows the strength and capabilities of our R&D team.”

The aim is to launch its first plant-based luncheon meat by early 2022.

Although OTS admits these products will be more expensive than its regular meat products, it has yet to finalise its pricing, which will be dependent on the raw materials, recipe and economics of scale. “We are not trying to make people switch from eating meat to plantbased food. That is not our objective. Instead, we want to cater to the people, a whole other market, who do not eat meat for whatever reasons,” says CFO Toh.

Looking forward, apart from planning to venture into the Philippines and launch its new plant-based meat products, it also intends to continue marketing its different brands to target various consumer price points and expand its presence. For instance, OTS intends to expand its footprint in Malaysia by entering the East Malaysian market while strengthening its presence on e-commerce platforms.

To further expand its overseas footprint, OTS has established and started its Indonesian operations in 1H2020 through its associated company PT Delta Bridge Foods that manufactures non-Halal Chinese sausages for distribution in Indonesia. The company intends to expand the product range offered by Delta Bridge Indonesia to include canned meat products by early 2022.

Photo: OTS Holdings