High valuation on good prospects for BIOHLDG-WA
Alan Voon 
Bioalpha Holdings expects both its manufacturing segment and retail pharmacy business to continue doing well this year

THE share price of Bioalpha Holdings Bhd had been fluctuating within a relatively modest range of 21.5 sen and 28.5 sen over the past 12 months.

However, the company’s warrant BIOHLDG-WA which was issued in January last year experienced a more volatile year as it rose to as high as 23 sen from a low of 11.5 sen. Over the past few weeks, both the mother share and warrant are consolidating at the lower range of their prices as the global equity market fell.

Bioalpha Holdings is a home-grown integrated health supplement company predominantly involved in the manufacture and sale of health supplement products.

The Bioalpha Group owns intellectual property rights to its proprietary liquid fermentation technology which produces mycelium from medicinal mushrooms used in its health supplement products.

To complement the production of the group’s health supplement products, the group has ventured upstream into farming as well as downstream into retail pharmacy, rendering itself the position of an integrated health supplements company.

For FY17, Bioalpha Holdings recorded a revenue growth of almost 15% to RM54.79 mil from RM47.72 mil in the previous year. Its pre-tax profit also showed a growth of 18% to RM9.5 mil from RM8.07 mil previously.

However, its net profit fell just below 9% to RM8.07 mil as a result of higher taxation due to origination and reversal of temporary differences amounting to RM1.61 mil.

In the notes accompanying its financial result, the company commented that both its manufacturing and retail pharmacies divisions achieved higher sales with uptick in sales from the group’s existing customers and also increase in franchise fees.

Bioalpha Group remains positive on the outlook as it expects both the manufacturing segment and retail pharmacy business to continue doing well this year.

For the manufacturing segment, growth is driven by an increase in demand from existing original design manufacturer (ODM) customers as well as new ODM customers secured during this year.

The group’s existing customers experienced uptick in sales last year and this is expected to prevail going into this year, reflecting solid demand for products formulated by its research and development team.

Additionally, the group is also in discussions with several potential clients to grow its customer base and product offerings.

Another strategy for growth would involve the group leveraging on its pharmacy chain to increase house brand products revenue which carry higher margins.

It also continues to plant herbs like tongkat ali, kacip fatimah, Hong Kong papaya, black pepper, soursop, curry tree, mas cotek and lemon grass which are high in demand.

The Bioaplha Group is also in the process of making Investigational New Drug Application for clinical trials for its development of botanical drugs.

The valuation of the new BIOHLDG-WA is rather high with a premium of 51%. Its warrant is also considered expensive from theoretical valuation perspective as its implied volatility of 68% is significantly higher than the mother share’s historical volatility of only 34%.

The relatively high valuation of the warrant may be attributed to the exciting growth prospects of the company.

The writer is CEO of Warrants Capital Sdn Bhd

This article first appeared in Focus Malaysia Issue 275.