BIOHLDG (0179) - BIOALPHA On Going Study Case #2 Q416
Reading Q416 report the day it was released, I got to a weird conclusion that I am not sure where the price would go in a short term bases. In general nothing went wrong, the company is going in the right direction with a heathy result, at the same time nothing went incredibly right.
Again, I am merely a new comer in investment, certain of many wrongs, couples of questions. Sober comments are welcome.
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things that stood out in the report
Revenue look impressive from Q415 9.7m to Q416 16.76m (73% increase), but notice that this include 4m of pharmacies revenue. The actual comparison (since Q42015 does not has pharmacies revenue) will be from 9.7m to 12.7m (31% increase). The annual 2015-2016 comparison exclyuding retail pharmacies is merely a 10.6% growth (29.2m to 32.3m). It doesn't mean retail pharmacies area doesn't matter, but I think is only fair to compare the same factors, then only consider new factors.
A 10.6% growth in core business is not a great number for Biohldg, which I view as a developing stock type. Yet it is acceptable as its plantation, upgrade and expansion plans have just began in late 2016. These plans blossom around Q417~H218, talk in detail below.
Unfortunately the cost of sales is not segmented, so there is no way to tell whether the gross profit margin in core business dropped or not. The drop in GPM from Q415 57% (5.5/9.7m) to Q416 43% (7.3m/16.8m) is said to be because of retailing's low margin and I have no opposition to this explanation. One rather important thing that should happen in the future is the cost of sales should be decreasing mainly becuase of the reduced cost of raw materials supply since Bio started to plant its own herbs.
The administration expenses increased from 4m to 6.2m (55%) due to recruitment in R&D, franchise department, marketing for the pharmacy company(Constant). While I have no opposition to this explanation, keep in mind that the marketing/rebranding of Constant would eventually goes away but the increased cost for new recruits is here to stay.
Profit before tax decreased from Q415 4.3m to Q416 3.9m, keep in mind the increase in administration expenses of 2.2m. Bio's net profit barely increased from Q415 3.8m to Q416 4.3m, with the help of tax return. I have a neutral-positive view on this one, credits to Bio on keeping profit level while spending to expand.
Cash flow decreased from Q3 15m to 5m, I do not understand the sudden jump in trade receivables, but the historical impairment is quick low and it should be fine. The other is an increase in investing in property, plant and equipment. I am not clear about the details of this spending of cash but I could agree with themanagement to spend it, since they would be receiving 26.7m in January 2017. They should began their expansion as soon as possible by spending their cash flow, knowing that there would be 26.7m coming in.
The revenue increase mainly came from the increase in China revenue (Q316 3.6m to Q416 6.8m), which is great/amazing. But the sales revenue in Malaysia is rather mediocre when pharmacies sales is removed (pharmacies sales also remained mediocre)
The eps is .679 calculated at 666.666m shares (Q415 is .88). Again from my previous article, the concern I have with Bio is the continuos dilution from shares issuing. We must understand that, Q117 would have 133.333m more shares from right issue, 29m share issuance scheme option(more to come as they are allow to issue up to 279.999m) and 133.333m warrant. Of course, the SIS option and warrant should not be taken as face number for dilution. An assumption of 5% execution rate would dilute shares by 21%(141.45/666.666m), using 2016 profit (8.27m) we would get an annual eps of 1.02. Which made the stock quite expensive even in my collected price .21(PE of 20.6), not to mention at its current price .25 (PE 24.5). Keep in mind the shares will be further diluted in the future until the toal shares reached to 1213.33m. This simply mean Bio's future earning has to catch up to, conservatively at least 30% grow for this year (with the consideration that this year warrant and option execution within 5%). Another concern would be the ROE (7.48%, is already not a great number), the 26.7m from right issue funding would bring up the equity by 27% (26.7/97.74m), further diluting its ROE, yet I believe with so many plans running Bio would know where to spend these funding to at least math previous ROE in the future.
The grow aspects of this stock remained the same, products expansion and plantation mentioned in my first article. Again, my expectation of explosive grow for this stock in term of earning will be the period of Q417~2h18. Yes Bio have purchased some new machineries to produce better products, but the 'ordering and put into use'/aka delay time is 6 to 12 months based on their right issue explanation special report. Yes Bio is starting to plant in Pasir Raja for the remaining 880 acre of land, but remember when Bio planted 124 acre in Q216, only 10% of those herbs are harvestable in Q416. Considering the same case, if Bio is able to plant 30% of 880 acre (264 acre) in Q117, only 10% (26.4acre) of herbs would be harvestable in Q317. The first new products launch 1H17, 5 in Malaysia, 3 in Indonesia, 3 in China, really I would expect the responses/effect came in 2H17. All these things above begin its effect from 2H17 and slow down towards 2H18.
Summary:
Good revenue from China. Good spending of cash flow. EPS is still going to get diluted in the future. Nothing much changes from my previous article view, a great potantial developing company with heathy grow in this Q416 report. The expectation of explosive grow of earning would be in the period of Q417~2H18.
BIOHLDG (0179) - BIOALPHA On Going Study Case #2 Q416
http://klse.i3investor.com/blogs/bioalpha/117505.jsp
