CIMB Research retains target price of 37 sen for Bioalpha

Bioalpha's pharmacy retail chain,

KUALA LUMPUR: CIMB Equities Research is maintaining its earnings per share (EPS) forecasts and target price of 37 sen for Bioalpha Holdings, an integrated health supplement company.

It said on Monday the target price was based on 20 times FY18F price-to-earnings (P/E) which is at a 20% discount to its 25 times CY18F target P/E for the consumer sector.

 “The discount reflects Bioalpha’s small market cap. The stock remains an Add and potential catalysts include stronger-than-expected sales from China and India, its two main export markets. A downside risk is weak domestic sales,” it said.

CIMB Research said on Sept 6, Bioalpha organised a site visit for fund managers and analysts to the Pasir Raja Herbal Park (PRHP) in Terengganu. Bioalpha also has another 295 acres of herbal park land in Kota Tinggi, Johor.

 In 2014, Bioalpha was appointed by East Coast Economic Region Development Council (ECERDC) as the anchor company to develop the 1,004 acre PRHP land into an integrated herbal cluster and manage it. 

Bioalpha expects PRHP to help the company source its own herbs and improve its quality control.    
 
So far, 124 acres of PRHP land have been cleared and planted with various herbs such as Kacip Fatimah, Tongkat Ali, Roselle, ginger, lemongrass, papaya, coconut and black pepper.  

While it may only take one year for a papaya tree to mature, it takes five to seven years for coconut trees and Tongkat Ali plants. 

“We estimate the current average selling price (ASP) of raw materials from PRHP is around RM3 a kg and we expect ASP to gradually rise as the plantation matures over the next few years. 
    
“Bioalpha targets production of only 200 tonnes of raw materials from PRHP in 2017F. Assuming ASP of RM3 a kg, we estimate revenue from PRHP this year would be only RM600,000 and pretax profit (PBT) of RM300,000 (assuming 50% PBT margin). 

“However, by 2020F, PRHP production could rise to c.2,000 tonnes per annum. and assuming a conservative ASP of RM3 a kg, we project PRHP revenue of RM6mil and PBT of RM3mil (50% PBT margin). We have not assumed any earnings from PRHP in our earnings forecasts,” it said.   

As it takes seven years for the Tongkat Ali plant to mature, Bioalpha currently sources its Tongkat Ali root from the Orang Asli who gather the roots from the jungle. 

“We estimate Bioalpha would start to source its Tongkat Ali root internally in 2020F onwards.  We understand there could soon be an industry shortage of Tongkat Ali as distributors from China have been purchasing Tongkat Ali in large quantities over the past few years. This could be long-term positive for herbal planters like Bioalpha,” said CIMB Research.