With both nations having large populations spread across a number of provinces, Bioalpha’s challenge lies in widening its reach and distribution network in these markets.
Notably, Bioalpha has a competitive edge in its halal-certified health supplement products, which is an underserved market in China.
Bioalpha managing director William Hon Tian Kok tells StarBizWeek that a critical factor to the success of its overseas markets is the localisation of its products.
“An important aspect of marketing products overseas is to understand the local needs.
“The products we market in Malaysia is very different when compared to Indonesia, which is in turn different from what we sell in China.
“The taste buds and preferences are distinctive from each other, and this is where our research and development (R&D) team play a key role in identifying what works in each of the market we are in,” according to Hon.
Bioalpha is involved in the businesses of integrated farming, research and development, manufacturing and retail via its Constant pharmacy chain.
It also owns intellectual property rights to its proprietary liquid fermentation technology, which produces mycelium from medicinal mushrooms used in Bioalpha’s health supplement products.
For the second quarter of the financial year ended June 30, 2017 (Q2FY17) the group registered a net profit growth of 77% to RM2.47mil, compared with the corresponding period last year.
On a six-month basis, Bioalpha recorded a net profit of RM514,000, due to two oneoff corporate expenses which occurred during Q1FY17.
The expenses, totalled at RM2.35mil, was related to fair value charges for the share issuance scheme and expenses for the rights issue exercise.
Nevertheless, Bioalpha’s historical financial performance in the second half of the year is stronger than the first half.
This trend is expected to repeat for FY17, as the group is confident that its sales in the second half of the year will surpass the first half.
Looking at the group’s operational performance and after stripping out the oneoff expenses, Hon is positive that Bioalpha’s full FY17 performance would be better than FY16, with double digit growth rates.
As of June 30, Bioalpha has cash amounting to RM27.69mil and bank borrowings of RM2.8mil.
So how does Bioalpha’s strategy vary across markets?
In China, the group has established a presence in areas such as Guangzhou and Shenzhen.
However, as part of Bioalpha’s growth strategy going forward, the group has identified a new high potential market – in Muslim majority provinces such as Xinjiang, Qinghai, Shaaxi, and Gansu.
Halal-certified health supplement products are uncommon in China.
Hence, Bioalpha is able to leverage on its Halal certifications to market Halal health supplement products to Muslims in China, filling the void of the underserved market.
Hon explains that the group is working with the respective Muslim Associations in the aforementioned provinces. “The Muslim market potential is huge. “Once we have established our presence Xinjiang, we can even use it as hub to penetrate into the neighbouring countries, such as Mongolia, India, Kazakhstan, and Pakistan, among others,” he says.
Hon adds that Bioalpha is marketing its products online to widen its reach, having recently signed up to market its Tongkat Ali products on the Alibaba platform.
The group has been getting a lot of enquiries and are actively pursuing the leads.
Over in Indonesia, Hon says that bulk of the growth potential remains in both Original Brand Manufacturing (OBM) and Original Design Manufacturing (ODM) markets.
Bioalpha’s OBM sales grew from RM4mil in financial year ended December 31, 2011 (FY11) to RM13.5million in FY16, on the back of only a handful of its house brand products.
In terms of marketing, Bioalpha currently works with several distributors to market its products.
The company is looking at appointing more distributors, especially in areas that the group has not penetrated yet.
Prior to establishing its own manufacturing facility in Kampar, Riau in Indonesia, which began operations last year, Bioalpha was stumped when it came to introducing new products rapidly.
The group had to undergo a lengthy processing period when registering new imported health supplement products with the regulatory body in Indonesia, with some products taking up to two years for approval, at times.
Now, with its own local facility in Indonesia, the registration process for new products is much faster.
Typically, product registration lead time for locally manufactured goods is shorter, as compared with imported products.
Hon says Bioalpha has since obtained regulatory approvals for several new products, of which the group believes will excite the consumer market.
In addition to a shorter product registration lead time, the manufacturing facility in Indonesia also allows production on an ODM basis.
Essentially, ODM is defined as the production of goods under another firm’s brand.
“We have customers in Malaysia who are interested to penetrate into Indonesian market through us.
“We also have Indonesian brand owners talking to us as they are keen to use our facility to produce their products.
“The prospect is good.
“If all goes well, we can potentially double our Indonesian sales over the next 18 to 24 months,” says Hon.
During the first half of financial year 2017, the bulk of Bioalpha’s revenue was generated from Malaysia, amounting to RM11.65mil.
This is followed by Indonesia and China at RM6.83mil and RM3.31mil worth of sales, respectively.
The group also increased its gross profit margin during the period, from 36% last corresponding period to 41%, as a result of improvements in its manufacturing division.
The group’s main revenue contributor is the manufacturing and sale of health supplement products segment.
During the first half of FY17, the manufacturing segment contributed a total revenue of RM14.22mil, as compared to the retail pharmacy business, which made up RM7.56mil.
On the local front, Bioalpha is in talks with several potential candidates to acquire existing pharmacy chains for the group’s expansion and enhance its market presence.
Hon says it is difficult to pinpoint a timeline at this juncture, as negotiations can be a lengthy process.
“We can only say we are working hard towards the acquisition and shall announce accordingly once we have secured the deal.
“In terms of size (of the potential pharmacy chain to be acquired), we are flexible - it can be from a few outlets to a chain of more than 10 branches.
“What matters most is the right pricing and growth prospects,” Hon explains, adding that Constant pharmacy was operating 12 outlets when Bioalpha acquired the chain.
To date, there are 17 Constant outlets, with 30 new outlets targeted to be rolled out within the next 12 months.
The majority of the new outlets will be located outside the Klang Valley, where competition is less intense.
Bioalpha plans to open more outlets in Kelantan, Kedah, Terengganu, and Johor, which have more demand, as there are less pharmacies, unlike in the Klang Valley.
The group’s franchised outlet in Kelantan was its first branch located outside the Klang Valley, which recorded brisk sales performance not long after its opening in July 2016.
“Our strategy for Constant pharmacy is to grow via franchising, which allows us to grow fast without a heavy burden on our balance sheet,” says Hon.
Bioalpha has allocated RM10mil for its pharmacy expansion, both organically and inorganically, over the next two years.
Going forward, Bioalpha remains optimistic of the prospects of the health supplement markets, particularly in the geographical markets it is present in.
According to independent market researcher Smith Zander International Sdn Bhd, the health supplements industry of Malaysia, Indonesia, and China are all expected to expand at double digit growth rates.
In Malaysia, the health supplements manufacturing industry size is expected to grow at a compound annual growth rate (CAGR) of 11.5% between 2016 and 2018, reaching a market size of US$1.38bil (RM5.89bil) by 2018.
Meanwhile in Indonesia and China, the health supplements market has a prospective CAGR of 12.7% and 33.5%, respectively.
“Against this backdrop, we are confident that Bioalpha will continue to prosper in the coming years,” says Hon.
Source: The Star