Bioalpha bags RM2.1b five-year contract to supply health food products to China

Bioalpha bags RM2.1b five-year contract to supply health food products to China
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KUALA LUMPUR (July 22): Bioalpha Holdings Bhd has secured a five-year contract worth 3.5 billion yuan (RM2.1 billion) to supply ingredients for health food and nutritional meals to private and public sectors in China.

Its managing director William Hon said the contract, which is subject to annual renewal, is expected to contribute 700 million yuan (RM426.7 million) to the group’s revenue per year, with the first batch of supply to kick off in September.

“We expect a significant revenue contribution from this contract even for this year, given that the supply will start in September. We will have four months of sales from the contract this year,” Hon said in a virtual press conference today.

“If you take the contract’s annual value of 700 million [yuan], you will have an idea of how much the contract would contribute to our top line this year. In terms of bottom line, our internal KPI (key performance index) is to achieve a gross margin of 3% to 5%,” he added.

The group’s wholly-owned unit Bioalpha (HK) Ltd earlier today entered into a partnership agreement with two Chinese partners — Guizhou Yuhexin Trading Ltd and Hainan Shifengfu Co Ltd — as well as a supply contract agreement with Guizhou Yuhexin.

Under the arrangement, Bioalpha is appointed as the main contractor and technical advisor to source and supply ingredients for the preparation of health food and nutritional meals, while Hainan Shifengfu will leverage Bioalpha's expertise in the formulation of these food products.

Hon said Bioalpha is expected to supply health food and nutritional meals to Guizhou Yuhexin to be distributed in the province of Guizhou, as well as other provinces moving forward.

Guizhou Yuhexin is principally involved in the trading of food products to the public and private sectors across the Guizhou province, Bioalpha said in a statement.

“For the public sector, the company is involved in supplying health food and nutritional meals to public schools and hospitals in Guizhou. As for the private sector, it supplies to notable hypermarket chains such as Yonghui Superstores.

“The hypermarket chain is owned by Yonghui Superstores Co Ltd, which is listed on the Shanghai Stock Exchange with a market capitalization of 92 billion yuan. Yonghui Superstores has more than 900 stores across China with 51 stores in Guizhou province alone,” it added.

Meanwhile, Hainan Shifengfu is a health food consultant with experience in research and development (R&D) as well as formulation of health and nutritional meals. It has a track record of collaborating with multiple food processing corporations throughout China, supported by its own team of professional formulators, according to Bioalpha.

“We are very delighted to have been chosen to work with these two experienced and established Chinese partners for the provision of health food in China to both the public and private sectors.

“At RM426.7 million a year for up to five years, this is the single largest contract that Bioalpha has ever secured since our inception,” Hon said in the statement.

Going forward, Hon said the group expects its sales to pick up towards the fourth quarter, backed by, among others, higher demand for health supplement products in light of the ongoing Covid-19 pandemic.

This, he said, may help improve the firm’s overall financial year 2020 after the group slipped into the red in the first quarter (1Q) due to lockdown measures locally and abroad that hampered exports, particularly to China and Indonesia.

“The losses in 1Q were largely due to the lockdown measures, on top of the fact that the period is traditionally our weakest season of the four quarters. With this new contract in hand, coupled with higher demand for health supplement products, we anticipate that the 4Q will return to normal or be better than last year,” he added.

Bioalpha is principally involved in agricultural development, R&D, manufacturing, distribution and marketing of functional food and health supplement products under Original Design Manufacturer and Original Brand Manufacturer basis, as well as operating a retail pharmacy chain under the brand “Constant”, according to its website.

The group’s range of products comprises processed herbs, formulated ingredients, functional foods as well as herbal and non-herbal health supplements

Shares in Bioalpha rose five sen or 2.86% to close at 18 sen today, with 191.28 million units done. This gave the group a market capitalisation of RM127.87 million.