Thursday 20 Jun 2024
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This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

Melaka-based pharmaceutical group Kotra Industries Bhd was recognised by The Edge Malaysia Centurion Club Corporate Awards 2023 as the best overall performer among companies listed on Bursa Securities with a market capitalisation of at least RM100 million but less than RM1 billion, and named Centurion of the Year.

As Centurion of the Year, Kotra Industries beat 483 others in the same market cap range, outshining them in terms of overall performance that measures a company in terms of published, transparent measures, namely its profit after tax (PAT) growth (40% weightage); its return on equity (ROE) that shows how efficiently it generates its profits (30%); and its returns to shareholders, which reflect the gains made in its share price over the evaluation period (30%).

Kotra has also proven it is the best in the healthcare sector, scoring a hat-trick of all three awards for Highest ROE Over Three Years, Highest PAT Growth Over Three Years and Highest Return to Shareholders Over Three Years — making it the biggest winner of The Edge Malaysia Centurion Club Corporate Awards 2023.

It is worth noting that this is the third time Kotra has bagged all three awards. The group achieved the same feat at the inaugural The Edge Malaysia Centurion Club Corporate Awards in 2019, and in 2022 — when the awards returned for the second year after a two-year hiatus due to the unprecedented Covid-19 pandemic.

Established in 1982, Kotra Industries manufactures a wide range of healthcare products under its three main brands — Appeton, Axcel and Vaxcel. The group currently operates its manufacturing facilities in Melaka and has a branch office in Kuala Lumpur that focuses on sales and marketing activities.

According to the group’s website, the Appeton brand offers high-quality over-the-counter supplements that cater for people in all stages of life, from prenatal development needs to geriatric health supplements. Axcel, meanwhile, covers paediatric care, anti-infective medicine and dermatological care while Vaxcel products focus on sterile injectables, including a range of antibiotics to treat an extensive list of health conditions.

As at June 30 last year, Kotra had 62 over-the-counter products and 134 pharmaceutical products registered in Malaysia, as well as in the international markets that the group operates in.

Kotra Industries is currently run by the second generation of the founder’s family. The group was founded by the late Piong Nam Kim @ Piong Pak Kim — the father of its managing director Jimmy Piong Teck Onn.

On receiving the awards at the gala dinner held in Kuala Lumpur last week, Jimmy’s son Simon Piong, who is also Kotra Industries’ executive director, said the group had anticipated another possible hat-trick. But nothing prepared them for the grand prize.

“We know we did well but winning the grand prize was unexpected. This is an important external recognition for us, for our team’s efforts,” said Simon, adding that the wins were more special as they were based on the group’s actual, measurable performance.

“There are not many genuine awards out there. So this one will definitely be a great motivation for us.”

The Piong family controls 60% of Kotra Industries. Jimmy’s wife, Chin Swee Chang, also sits on the board as executive director while his brother Datuk Piong Teck Yen and nephew Piong Chee Kien are non-executive directors.

Interestingly, former Nanyang Siang Pau business editor and savvy investor Fong SiLing — better known as Cold Eye — also owns 1.2 million shares or a 0.81% stake in the company.

Kotra Industries’ PAT, or net profit, for the period grew from RM22.2 million in its financial year ended June 30, 2019 (FY2019) to RM29.6 million in FY2020. While net profit dipped to RM24.4 million in FY2021, it recorded a quick and impressive rebound to RM62.1 million in FY2022. This means a three-year compound annual growth rate of 24% in its bottom line, adjusted according to the awards methodology.

The strong rebound in FY2022 came from a significant recovery in revenue to RM207.9 million — top line had previously dropped to RM159.6 million in FY2021 from RM171.7 million in FY2020 — and higher sales of products with better margins.

“The higher revenue was primarily attributed to higher sales orders from customers who replenished their stocks when the economy reopened. The Covid-19 pandemic further escalated the growing trend for health supplements, especially immunity-boosting products, such as vitamin C and multivitamins.

“The increasing customer demand created sales opportunities for us and we optimised it by responding quickly to satisfy the needs of our customers. As such, our over-the-counter products sales contributed 53% of the revenue and continued to maintain a strong market presence while the remaining 47% of revenue consisted of sales of pharmaceutical products,” Jimmy shared on behalf of Kotra Industries’ management in the group’s 2022 Annual Report.

“Demonstrating our positive operational performance, the group closed the year with profit before tax, improving 121.8% over the last financial year, resulting from optimising the quality of our expenses, which brought in more value from the increase in sales,” he said.

He also noted that the jump in PAT was due to the mandatory recognition of deferred tax assets pursuant to MFRS 112, following an assessment on the utilisation of the group’s available tax credits and losses.

“The huge jump in margin was partly because 2021 had not been a good year for us. Lower sales compounded by certain costs that were fixed in nature had affected our bottom line then. Covid-19-related impacts drove up costs and expenses, especially raw materials and logistics costs, which are significant expenses to the group. The results we achieved this year is actually a natural progression from pre-pandemic times,” Jimmy added.

The results we achieved this year (FY2022) is actually a natural progression from pre-pandemic times.
— Jimmy

Meanwhile, Kotra Industries’ share price saw a strong rally during the period under review. The stock, which was trading at an adjusted RM1.62 apiece as at end-March 2020, jumped to RM2.29 by end-March 2021, before strengthening to RM4.15 by March 2022. It climbed further to RM5.55 by the March 31 cut-off deadline for the awards this year — translating into a three-year gain of 50.07%, based on awards methodology, the highest among its healthcare peers.

On top of that, Kotra Industries’ shareholders were rewarded with a total dividend per share of 25.5 sen for FY2022, higher than the nine sen each it paid for FY2021 and FY2020.

Kotra Industries, whose market capitalisation stood at RM821.5 million as at March 31 this year, achieved a three-year weighted ROE of 20.7% for FY2020-FY2022, after recording ROE prints of 16.3% in FY2020, 12.3% in FY2021 and 27.6% in FY2022.

With a global footprint in more than 30 countries, Kotra Industries wants to amplify its presence in its existing export markets, particularly in Indonesia, Myanmar, Vietnam and Cambodia, as well as in Africa, by expanding the group’s product portfolio and strengthening its brand name in these countries, according to Jimmy. In FY2022, revenue from exports contributed 29% to its total revenue.

“The availability of manufacturing capacity will provide us with a better opportunity to participate in overseas tender biddings to supply our pharmaceutical products in the public sector. In addition, the weakening of the ringgit has been favourable to the group as an exporter, as most of the export revenue is in US dollar,” he said.

In a May 29 research report, Kenanga Research reiterated its “outperform” call on Kotra Industries, with a target price of RM7 per share. The stock closed at RM5.36 on Sept 6.

“We continue to like Kotra Industries for its bright prospects of the over-the-counter drug market; its integrated business model encompassing the entire spectrum of the pharmaceutical value chain from research and development and product conceptualisation to manufacturing and sales; as well as the superior margins of its original brand manufacturing business model with established household brands such as Appeton,” its analyst said.

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