Going for Listing: Bioalpha to ride health supplement growth

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BIOALPHA HOLDINGS BHD, which is set to make its debut on the ACE Market on April 14, is primarily involved in the manufacturing and sale of semi-finished and finished health supplements.

The group is keen on exploring new growth avenues, ranging from the formulation of new biotechnology products to expanding into new export markets in the Middle East, according to its managing director William Hon.

Bioalpha’s substantial shareholders include Perbadanan Nasional Bhd (PNB) with a 22.74% stake and Malaysian Technology Development Corp (MTDC) with 17.57% equity interest. PNB and MTDC are ultimately owned by the Ministry of Finance.

A steady stream of government-backed initiatives makes Bioalpha a direct proxy for the local health supplement industry, which is expected to grow from RM759.36 million this year to RM914.59 million by 2019. For example, in 2011, a Bioalpha subsidiary was appointed as an Entry Point Project partner under the Economic Transformation Programme to explore the possibility of turning traditional herbal supplements into prescription drugs.

Apart from being an original design manufacturer and supplying its products to other companies, which sell the products under their own brand names, Bioalpha is also moving towards establishing its in-house brand of nutritional supplements.

To do this, the company has entered into an arrangement with MyAngkasa, a subsidiary of the National Cooperative Organisation of Malaysia, to open retail outlets to sell Bioalpha’s health supplements.

The deal also provides Bioalpha with a large new market through MyAngkasa, which comprises some 10,000 cooperatives and about eight million members.

Bioalpha prides itself on its integrated processes, which include the R&D, farm cultivation and manufacturing segments. This allows the group to keep its costs low and maintain its high net profit margins of 30% on average in the past years, Hon tells The Edge.

In the initial public offering (IPO), the company had offered 100 million new ordinary shares, 20 million of which were allocated to the public and 80 million by way of placement to selected investors.

The 20 million shares, priced at 20 sen apiece, were oversubscribed by 32.19 times.

The listing is expected to raise some RM20 million for Bioalpha, which will mainly be used for working capital requirements and the repayment of bank borrowings.

With a profit margin averaging 30% a year between financial year 2011 and FY2013, the group’s new growth avenues could boost its earnings further. For the nine-month financial period ended Sept 30, 2014 (9MFY2014), Bioalpha delivered a net profit of RM3.73 million on the back of RM18.77 million in revenue.

Based on its enlarged issued and paid-up share capital of 463.41 million shares post-listing, this translates into 0.83 sen in diluted earnings per share as at 9MFY2014. Net assets per share amount to 15.6 sen, which gives it a price-to-book value of 1.28 times at its 20 sen IPO price.

The company is also implementing a stated dividend policy of 30% of net income to reward long-term shareholders, says Hon.

In a non-rated note by Kenanga Research on April 2, the firm says Bioalpha holds a lot of potential as a growth-stage company.

“We are positive about the company’s prospects underpinned by the following: its ongoing expansion plans, venture into the Middle East market in the second quarter of this year, development of 30 new product formulations and competitive edge by having its own herb farm,” says Kenanga.

The research house has pegged Bioalpha with a fair value of 24 sen, which is derived from a price-earnings multiple of 11 times based on a projected earnings per share of 2.1 sen for FY2016 ending Dec 31.


This article first appeared in Capital, The Edge Malaysia Weekly, on April 13 - 19, 2015.