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Friday, December 30, 2016

BIOALPHA On Going Study Case #1

Author: leonnoel | Publish date: Thu, 29 Dec 2016, 10:33 PM

[Writing extents ideas and make them sound. ]

Bioalpha is the second stock I picked in my just began investing life with much more in depth research compare to the first.

(The first being Maybank at 7.73 without much concerns except amazing dividend, strong asset, government backup, and reverse investing)

[I am new to the scene, certain of many wrongs, and couple of questions. Sober comments are welcome.]

Bioalpha in a nutshell. It sell raw herbs, finished health supplyment goods and provide packaging, processing services for raw herbs. Just brought pramacy to promote its finished goods' brand.

Bioalpha have been through a 3 for 1 bonus issue on 07/09/2016 and a right issue at .20 with warrant ex-price .22 executable anytime and maturity date of 5 years releasing somewhere around January 2017. Dilluted EPS. It was nice to hear Bioalpha release dividend, but is so insignificant sometime I wonder is it worth the cost to issue it. After all we don’t come for dividend when picking the fast growers.

[I don’t understand how bonus issue is a way of rewarding investor when there is other methods such as dividend or stock buyback]

Reason for picking Bioalpha up even though the PE is relatively high around 21.08 at .205 [Got the eps on trading platform]

Point 1. Bioalpha has stable profit, there are not a year with losses. Of course it does not proof much considering it only has about two and a half year data on I3.

Point 2. Diverse Revenue, last quarter 30% China 30% Indonesia 40% Malaysia

Point 3. Halal Certificate, great stuff. Malaysia’s halal Cert is well received in many countries( like Indonesia).

Point 4. Revenue-profit repression. This is difficult to measure since Bioalpha profit margin differ so much quarter through quarter (maybe I should look into its gross profits). However simply looking at its 2016 revenue-profit does not quite match, in the quarterly report, director also mentioned the increase of cost related to R&D, product expansions and acquisition of a pharmacy company. Which mean once the costs (except R&D, the rest are all sunk cost) cease/reduces, profit would show improvement.

Point 5. Potential, upon all things this make the most sound to me. Gathering 26 M from right issues + its own expenses, Bioalpha is planning to launch 27 Products throughout 2017~18 in Indonesia, Malaysia and China. Indonesia will be the main focus, there is already a herb plant processing factory setup and ready to use once the license is authorized by the local authority. It has 1023 acres of land borrowed with 28 years contract, use for herb plantation, where only 123.5 acres is planted and 10% of 123.5 acres is harvestable. They plan to fully plant the land on 2018 and those herb would be fully harvestable (enter production cycle) on 2020. I am hyped when I read the report (just as hype as when I see the warrant has a maturity of 5 years, executable anytime).

Point 6. Cash Flow, last quarter 15m. Cool. Total Debt low, I forgotten how much. Is an amount that can be clean up immediately if they want to use this cash flow.

Point 7. Confident directors. Brought shares, A LOT of shares. Promised if there are excess right issues, will execute up to 75% of total right issues(this made the future calculation of shares volume easier, probably 99% of the right issues will be executed).

Negative 1. The acquisition of now call Constant Pharmacies does not sound good to me. Judging by its line of business, and yet developed potential, this not so important thingy simply add in some distraction to operation.

Negative 2. PE is relatively high 21.08 at .205 (If grow does not happen and PE drop to 15, the price would be at .145. Of course we still yet to see 2016 Q4 EPS)

My decision is mainly made on top of Bioalpha potential, diversity and cash flow. I assume for a fast grower (grow type stock) PE of 21 is still acceptable, hopefully I am right. Will be keeping in touch with this stock per quarter. I expect to keep this stock for 1~3 years depending on the adjustment from quarterly report.

Do tell me if you think what I stated is wrong, with a sensible why, please.

The thing I am most afraid of is I mistaken the EPS ---> messup PE and brought at expensive price like PE at 30+


[Bioalpha report mentioned something call share issuance scheme which somehow related to options, if someone know what this means kindly do tell]


[I don't understand how the exercise of warrants and options will not dillute eps]


P.S. kcchongnz you are great. Keep up the good work. (Computing cumulative EV, ROIC, almost any kind of ratio from quarterly report using average method is harder than I thought)

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