This article first appeared in The Edge Financial Daily, on February 11, 2016.

KUALA LUMPUR: Datuk Dr Lee Fang Hsin is putting a little more caution into projections for revenue and earnings in the financial year ending Dec 31, 2016 (FY16), indicating that growth might come in a bit lower than last year.

During a recent interview with The Edge Financial Daily, the president and group managing director of YSP Southeast Asia Holding Bhd (YSPSAH) took a humble tone about the generic drug company, and its ambitions for revenue and earnings.

“There are some years when we’re confident of our business growth, but this year there are more uncertainties. But we will try our best to maintain double-digit [revenue] growth,” he said.

Lee noted how global pressures, such as potential further increases in US interest rates in 2016, depreciation of the yuan and fluctuations in crude oil prices, could affect a slowing Malaysian economy.

For the nine months ended Sept 30, 2015, YSPSAH turned in a stellar performance, with net profit more than doubled to RM22.61 million from RM9.47 million a year ago, while revenue was up 14.9% year-on-year to RM169.26 million from RM147.37 million.

Net profit for the three months to Sept 30, 2015 more than tripled to RM9.84 million from RM3.06 million a year earlier, while revenue grew 19.1% to RM59.32 million from RM49.82 million.

Lee said YSPSAH witnessed a surge in sales ahead of the implementation of the goods and services tax (GST) in April last year, as customers stocked up on pharmaceutical products to avoid paying more after the GST implementation.

“We should be able to maintain steady growth [in FY16], but we do not expect to repeat last year’s stellar performance [as spending trends normalise after consumers become more familiar with the GST],” he added.

Currently, the domestic market accounts for 80% of the group’s sales, while the remaining 20% comes from the overseas market.

As YSPSAH’s pharmaceutical business in Malaysia is getting matured, the group will focus more on growing its veterinary products in Vietnam and Indonesia to create another wave of growth.

Lee said the group had established the business in Ho Chi Minh City and Da Nang, and will expand into Hanoi this year. As for Indonesia, YSPSAH will focus on Medan.

It also plans to relocate its veterinary product manufacturing operations in Bangi, Selangor, to its plant in Dong Nai, Vietnam, to serve the larger market there.

According to him, the veterinary product market in Malaysia is a shrinking one.

“After relocating the veterinary product manufacturing operations in Bangi, the plant will be used to manufacture vaccines and eye drop products that command higher margins,” said Lee.

Still, he recognised that the plan may take some years to materialise, due to licensing and registration processes with the health ministry.

Lee said registration of drugs had to be done product-by-product, which takes a long time.

The group spends about RM8 million to RM10 million in capital expenditure per year on its plant in Bangi, mainly for replacement or acquisition of machines. The utilisation rate of the plant is at 70%.

Apart from Bangi and Dong Nai, YSPSAH has a pharmaceutical plant in Indonesia.

Lee said YSPSAH, which already has branches in Cambodia, Indonesia, Myanmar, the Philippines, Singapore and Vietnam, hopes to further expand in the Asean region.

“Our ultimate aim is to have manufacturing sites in every country that we are in and sell the products there. However, it is not easy to enter the highly regulated pharmaceutical industry, as different countries have different regulations,” he noted.

Lee also pointed out that the group faces challenges when it wants to apply for wholesale licences to have distribution rights in several countries within Asean for its pharmaceutical products.

There are initiatives for standard harmonisation for the pharmaceutical industry in Asean, but he said YSPSAH had yet to benefit from it.

“We face non-tarriff barriers in countries such as Indonesia and Vietnam, as the pharmaceutical industry is classified as [a] sensitive industry,” he added.

The group has lined up about 10 products for launch each year. Today, its product portfolio constitutes about 200 to 300 products, comprising pharmaceutical, over-the-counter and veterinary products.

YSPSAH was in a net cash position as at Sept 30, 2015, with cash balances of RM51.88 million compared to borrowings of RM9.57 million.

The share price of the pharmaceutical stock has been on an upward trend since mid-May last year. It reached a record high of RM3.49 on July 31, 2015.

YSPSAH shares closed unchanged at RM2.74 yesterday, with a market capitalisation of RM368.85 million.