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It is showtime for Kotra now, says its chief
 
By: Supriya Surendran from The Edge Malaysia Weekly
 
 
IT is now showtime for Kotra Industries Bhd, says its managing director Jimmy Piong Teck Onn, who expects the company to reap the harvest of the RM180 million it invested in the past decade.
 
Piong, whose family controls 51% of Kotra, is in high spirits because the pharmaceutical company now has enough capacity to fulfil the new orders flooding in, unlike before.
 
“I would say it is now showtime [for Kotra] as we need not worry about capacity. We can just focus on sales,” he tells The Edge.
 

“The pharmaceutical business is about economies of scale. We need huge capacity and automation to grow it ... these are the elements we need in order to compete with the large pharmaceutical players, especially those from India.”

 
Kotra’s capacity utilisation is 30% at present, which means the group can cater for future sales growth.
 
Piong says Kotra is awaiting approval for its pre-filled syringe (PFS) and metered-dose inhaler (MDI) manufacturing lines, which is expected over the next 12 months.
 
In June last year, the National Pharmaceutical Regulatory Agency approved the group’s first PFS product — Vaxcel Granisetron 1mg/ml injection.
 
Both the MDI and PFS lines are pioneer initiatives as the products of these manufacturing lines have never been produced in Malaysia before..
 
However, Piong points out, revenue contribution from these two lines will not be significant. “We don’t have that kind of (financial) muscle where when we launch a new product, we see a big bang contribution. For us, it is more of building our portfolio so that we can stay relevant as a competitor in the international arena.
 
“If I were to just focus on manufacturing paracetamol, I won’t survive as there are thousands of competitors [in generic drugs] but with MDI, for example, there would probably be five to six competitors,” he says.
 
The group manufactures generic drugs and its main brands include Axcel, which specialises in providing paediatric care, anti-infective medicine and dermatological care through prescriptive medication in the form of tablets, capsules, creams, ointments, syrups and suspensions, as well as Vaxcel, which specialises in providing sterile injectables.
 
About 60% of local revenue generated by Kotra’s pharmaceuticals division is derived from hospitals while the remaining 40% is from general practitioners.
 
In the consumer segment, the group’s main brand is Appeton, which carries, among others, child health supplements such as multivitamins and Vitamin C, Appeton Weight Gain for both children and adults and the Appeton Wellness range for seniors.
 
These products are found on the shelves of most major pharmacies in the country.
 
Kotra had a bumper year in its financial year ended June 30, 2017 (FY2017), thanks to its RM180 million expansion plan that began 10 years ago. It posted a record-high revenue of RM166.37 million, which, in turn, lifted its net profit to a peak of RM12.4 million, up 59% from the previous year. Earnings per share increased to 9.34 sen from 5.87 sen in the preceding year..
 
In the first half of FY2018 (1HFY2018), Kotra’s revenue came in at RM89.62 million, up 13.5% from a year ago, as it embarked on aggressive promotional efforts. Net profit grew 10.6% to RM6.51 million.
 
To support its expansion plan, which included the completion of the Kotra Pharma Technology Centre — its state-of-the-art manufacturing facility in Melaka — the group had to forego dividend payments for 10 years until 2017.
 
Some 47.8% of Kotra’s sales are to foreign markets. The group has a presence in over 30 countries with Asean as a major export market. According to Piong, ensuring Kotra’s relevance in the export markets is the group’s top priority now.
 
“We hope to derive 50% of our revenue from export markets in this financial year, from the pharmaceutical products we provide to both hospitals and general practitioners in the countries where we have a presence. Our new area of focus is Africa,” he says.
 
On Kotra’s future plans, Piong says the group will only embark on its next expansion phase after hitting its revenue target of RM250 million. “We don’t want to stretch our finances. Besides, it is high time we capitalised on the capacity we have built. I don’t want to speculate on how many years it would take us to reach RM250 million ... realistically, it will take a few years.”
 
Kotra is currently valued at a historical price-earnings ratio (PER) of 18.34 times. At its last traded price of RM1.80, the company had a market capitalisation of RM240.5 million. In comparison, Pharmaniaga Bhd is valued at 20.24 times, YSP Southeast Asia Holding Bhd at 16.7 times, CCM Duopharma Biotech Bhd at 19.69 times and Apex Healthcare Bhd at 14.5 times.
 
Piong opines that pharmaceutical companies deserve better valuations, given the complexity of the business with its high barriers to entry.
 
“Pharmaceuticals is a complex business due to the stringent regulatory framework. Yet, our valuations are among the lowest. The only industry with a more stringent regulatory framework is aeronautics,” he says. “I believe as a category, pharmaceutical companies are grossly undervalued. A valuation of 20 to 25 times is more reasonable.”
 
 
 
 
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