Concerns of OB Holdings Berhad (OBHB)’s Lawsuit Justified

Investors had recently raised eyebrows over a recent dispute over an alleged infringement of intellectual property by freshly ACE-market listed OBHB towards its previous Hong Kong based customer, Nature One Dairy (NOD), for a certain milk powder based product.

According to the prospectus of OBHB, the majority of the products of the companies are mentioned under goat milk, hence it is safe to assume that the allegations from NOD are goat milk related.

Under the allegations, OBHB was requested to provide a written confirmation that it will cease and desist from any dealing with respect to the manufacturing of a certain milk powder product for a new customer acquired by OBHB in August 2024.

For the uninitiated, OBHB is an end-to-end manufacturer of fortified food and beverages (F&B) and dietary supplements to brand owners, where they also cultivate their own brands. Hence, intellectual property over formulation and key ingredients are critical in the industry.

General ingredients such as goat milk powder and non-exclusive extractions or active ingredients mix, is not considered “exclusive” in this manner.

Most notably in this case, NOD, with a reducing revenue trend from 8.02%, 2.71% and N/A in FYE 2023, FYE2024 and FPE2024, is exerting concerns over a new customer by OBHB in August 2024, which we could assume that NOD could be threatened by the emergence of a new competitor in its dominant markets.

The timing of the issuance of a lawyer letter is also peculiar, whereas it is spot on OBHB’s news sensitive period of listing, which in some way, could impact their share price performance.

The case of the writing is to reiterate where OBHB, with their expansion plans in place and better balance sheet after IPO, is pressured due to the said allegations, and its price has now fallen below its IPO price of RM0.240 to RM0.235 as at the time of writing. Given the strong oversubscription of 120.94 times in their IPO in public portion, such downturn in share price indeed shows an investment opportunity.