BIOHLDG (0179): Bioalpha Holdings Berhad - A diamond in the rough?
Speaking of Bioalpha Holdings, I’m sure this would spark investors’ memory in which they secured a five-year contract in July this year, with the total value or 3.5 billion yuan or RM 2.1 billion, to break it down, it would be roughly 700 million yuan or RM 426.7 million revenue per year.
Now, we all have the same question in mind – IS THIS REAL?
Historically, Bioalpha Holdings revenue was only around RM 60 million to RM 70 million pear year previously, with the addition of RM 426.7 million per year kicking in, this would drastically change the ball game of this company isn’t it?
That would be a definite yes. The next question would be – can Bioalpha profit from this contract? Since the contract is giving a razor thin gross margin of 3% - 4% only!
I’m fortunate enough to came across one of the employees involved in the lease of a warehouse in Hainan to get the facts right. The truth is – Bioalpha Holdings collaboration would be done in a consignment basis. Meaning that if a client would come into the store to buy one item, then Bioalpha will then order and sell it to them. Think of it as a trading business, but remove the heavy inventory factor, in which most people think that a small bump in the inventory management would take away the margin!
Well, fortunately, the answer is a no.
Also, the company was focused on creating detox, cleansing, carb absorption products and so forth. Hence, when the COVID-19 strikes, the demand for the product decreased. (Which is fair) I’m surprised that Bioalpha Holdings directors and senior management voluntarily decided to take a 15% salary cut and going to make a drastic change ahead!
Moving forward, Bioalpha’s ODM strategy is going to focus on immunity-booster, which is a sought-after product after the COVID-19. And I strongly believe, COVID-19 will not go away permanently and the demand for immunity-booster will be long lasting.
If we were to look at the price chart of Bioalpha Holdings Berhad now, it is currently testing on the resistance level of RM 0.280. Once a breakout was confirmed, the stock would challenge the next resistance level of RM 0.325, and based on previous chart, this could happen in a single day!
So to me, Bioalpha is still undiscovered by many on its nature of venturing into immunity-booster products. Not to mention the huge contract they received from China is another earnings booster!
However, I don’t think this quarter will be nice for Bioalpha Holdings (Well, the stock price had already factored in anyway) this was mainly affected by their retail sector. But again, I believe the stock price had already factored in most of the bad news, and it is now time for the company to retest RM 0.325!
According to The Business Research Company’s Immunity Boosting Food Products Market Global Report 2020-30: Covid 19 Implications And Growth, the growing demand for immunity-boosting foods and beverages during the COVID-19 pandemic is driving the immunity-boosting food products market size in an attempt to build resilience against the virus. The global immunity-boosting food products market is expected to grow from $830 billion in 2019 to more than $1 trillion by 2023 at a compound annual growth rate (CAGR) of 6.2%.