Worst Is Over – This Medical Related Counter Will Surprise You!

With COVID-19 cases getting out of hand in Malaysia, everyone is pointing fingers towards each other on the mismanagement on the virus. However, when studied on the scale of global level, we would note that global cases – whether we like it or not, had recovered it’s upward momentum.

Remember, it is the nature of a virus to evolve to adjust towards more survivability and duplication of itself. It is normal for all kinds of virus to evolve, and in COVID-19 in case, this seems to be worse.

Nevertheless, the resurgence of pandemic had once again hampered the overall sector of Malaysia apart from Healthcare Index itself, which showed a resilient pattern despite the other sectors are plummeting, especially any recovery theme-play stocks.

Thus, it is very normal for investors to allocate a portion of the portfolio to equip themselves against the backdrop of the pandemic’s impact. One interesting case study to have is Bioahlpa Holdings Berhad (“BIOHLDG”). I did not have any prior study at the company, but an announcement from the company had piqued my interest, where the fund-raising activity of the company, in particularly the rights issue of common class shares as well as irredeemable convertible preference shares (“ICPS”).

It is also interesting to note that most investor had bad impression on ICPS due to the potential dilutive effect and some company had misused ICPS as a tool to manipulate share price to profit from innocent investors (in Chinese, that would be 韭菜). But Bursa Malaysia had identified the problem and settled with a limitation on the maximum issuance of ICPS or any convertible securities. A glimpse on BIOHLDG’s rights issue proposal, they seem to follow the guidelines pretty well.

Nevertheless, the company had 54.98% oversubscription in normal class shares and 207.81% oversubscription on the ICPS.

A common fact or well know fact is that during bad market, everyone tends to keep cash in order to protect their capital or wait for better investment opportunities. However, to subscribe rights issue, the investor(s) would need to folk out real cash to pay for the fee. With the overwhelming demand for BIOHLDG’s ICPS, there must be something brewing behind the company.

Based on the company’s abridged prospectus on the rights issue, the company had identified the sum of capital to be raised to mostly utilize for working capital.

Pursuant to the prospectus, the are some key recaps for those had not follow BIOHLDG. The company had on 22^nd July 2020 announced to that Bioalpha HK had a partnership agreement and supply contract with HYHX and HSFF, both companies are involved in the health food and nutritional meals – which is what BIOHLDG’s strengths belong to. The company had by far owned the largest self-sustained herbal planting business in Malaysia.

Back to the working capital part, the fund raising is mostly utilized to purchase ingredients or raw materials in order the execute the contracts. The contract value is amounted to RM 2.1 Billion over a five-year period of time. You may search for the news or official announcement from the company.

Alongside with the oversubscriptions, I suspect there might be some really good news to be announced by the company. Since, in financial year 2020, the company had RM 38.9 Million in total losses. What could go worse?

Back to my theory: I believe there might be some good news around the corner in order for people to chase after the ICPS crazily as such. It just does not make sense for a loss-making company to have so much interest in it – unless there are potential good news to be realised, or the company is heading for a turnaround as per the prospectus mentioned, via the businesses from China.

Meanwhile, BIOHLDG had been the ODM supplier for several own-brand healthcare products in Malaysia. Businesses are picking up recently due to the lock-down imposed by the government – where it induced more consumer to rely on online business. A channel check with the customer of BIOHLDG also showed that the order from her is increasing as of now.

In terms of chart pattern, I believe you do not to be a chartist to tell that the company is heading towards a downward momentum. However, we do see some consolidation exercises around 20.5 cents to 21.0 cents. Perhaps this is still in the consolidation phase, but on a risk-reward perspective, the risks are considerable low (cut loss around 18.5 cents, the previous gap-up point) but the rewards could be handsome – as typically, investor would chase over mother share in order for ICPS to increase in value.

Overall, I think BIOHLDG is a pretty good buy at the current level. But don’t forget to control your risks!