BioAlpha remains an Add at CIMB Researc

KUALA LUMPUR: Health supplement company BioAlpha Holdings remains an add at CIMB Equities Research as continued strong domestic revenue is a potential catalyst.

It said on Friday the 1HFY18 net profit, at 27% of its full-year forecast, was in-line with its expectations as 1H is seasonally the weaker half.

CIMB Research said the 1HFY18 revenue was up 46.8% on-year to RM32.0mil, mainly led by strong domestic manufacturing and pharmaceutical revenue growth. 

The 1HFY18 net profit was up 8.6 times at RM4.8mil, mainly due to strong domestic revenue and greater economies of scale. However, Indonesia and China recorded revenue declines in 1H18. 

 

Meanwhile,  1HFY18 domestic pharmacy revenue grew by a strong 69.7% on-year to RM12.9m as retail revenue showed continued strength. 

Bioalpha has 16 pharmacies and is opening two more new outlets in Kelantan and Selangor over the next two months.

“Management’s strategy to use Constant pharmacies to sell its house brand products is showing results. We understand that management is also looking at M&As to grow its pharmacy network,” it said.

However, China revenue in 1HFY18 was down 18.2% on-year at RM2.7m, which was a disappointment.

“We understand that its China distributors in Muslim-majority provinces like Xinjiang, Qinghai and Shaanxi are still waiting for product approvals from the authorities. 

“Once the approvals are secured, we believe China sales should experience strong revenue growth. The company has so far launched five new products in China,” it said.

Indonesia’s 1HFY18 revenue was also down 4.4% on-year at RM6.5m, which was expected. Product approvals for health supplements produced in Riau, Sumatra is taking longer than expected. 
However, approval for food products from local authorities has been fast.

As at end-June, Bioalpha’s balance sheet was RM7.7m net cash, or one sen net cash per share. We expect the cash will be used as working capital for launching new products in its three main markets this year and also for replanting cost for its herbal plantation in Pasir Raja.

“We maintain our EPS forecasts and target price (of 44 sen; last traded price was 27 sen) based on an unchanged 2019F 20 times P/E, a 20% discount to our 2019F consumer sector target P/E of 25 times. 

“The discount reflects Bioalpha’s small market cap. The stock remains an Add and potential catalysts include continued strong domestic revenue growth, while de-rating catalysts are continued weak export revenues,” it said.