This article first appeared in The Edge Financial Daily on October 22, 2018

Bioalpha Holdings Bhd
(Oct 19, 25.5 sen)
Maintain add with a target price (TP) of 44 sen: Bioalpha Holdings Bhd recently announced that it had entered into a memorandum of understanding (MoU) with Jinrui Fortune Holding Group (JRFH) for several proposed collaborations, developing an integrated “Thousand Medicinal Hall” platform, which will provide consultation given by top traditional Chinese medicine (TCM) practitioners in China.

JRFH will collaborate with Bioalpha to expand JRFH’s business in Malaysia, and Bioalpha will collaborate with and participate in JRFH’s Chenzhou (Hunan) Integrated TCM Project, which includes the development of herb farms, a product research and development facility, and a Good Manufacturing Practice-certified factory. Bioalpha will collaborate and participate in JRFH’s project to develop eco-health tourism in Chenzhou city, Hunan province, China.

JRFH is an integrated TCM company based in Shanghai, China, and is currently operating medical halls in Shanghai, Beijing, Shenzhen and Hefei. JRFH has around 50,000 members in its loyalty programme and the company eyes to have a network of 1,000 medical halls in China by 2025.

We see the MoU announcement as positive for Bioalpha as we believe the company could leverage on JRFH’s distribution network in China to promote its herb products to be used by TCM practitioners to treat their patients. This should help boost Bioalpha’s product sales as well as its brand profile in China.

Bioalpha has two successful herbal plantations in Pasir Raja, Terengganu, and Desaru, Johor respectively (combined area: 1,300 acres [526.09ha]).

We have maintained our earnings per share forecasts and TP, based on 20 times calendar year 2019 forecast price-earnings ratio (PER), a 20% discount to our consumer-sector target PER of 25 times. Potential catalysts include strong, sustained domestic revenue growth and the signing of a working agreement with JRFH. Downside risks include continual weak export revenue. — CGSCIMB Research, Oct 18