Monday 22 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on January 15, 2024 - January 21, 2024

SUNZEN Biotech Bhd (Sunzen) is shifting its focus away from its traditional animal health product business and banking on human health products and loan financing services to become the group’s new dual engines of growth in the coming years.

Group managing director Teo Yek Ming says the group will be focusing on growing its two other core businesses given the challenging business environment in the animal health product sector. 

“Since the beginning of 2023, many pig farms in Malaysia have been badly hit by African swine fever. Many pigs died and it affected our animal health product business because the small pig farms were our main customers,” he tells The Edge in an interview.

Sunzen currently has three main business divisions — animal health products under Sunzen Corp Sdn Bhd, human health products under Ecolite Biotech Manufacturing Sdn Bhd and loan financing services under Finsource Credit (M) Sdn Bhd. Ecolite Biotech also owns Yanming Resources Sdn Bhd, a Puchong-based bird’s nest processor and exporter.

Sunzen Corp’s manufacturing facility consists of five production lines in Shah Alam, Selangor, with a total built-up area of 63,124 sq ft. It produces organic acid blends, antibacterial, antiviral additives and other feed supplements.

Teo, who is the group’s single largest shareholder with a 17% stake, believes Sunzen could be more profitable if it were to separate its animal health product business from the group.

“The way I see it. We have three options now — team up with a new partner to revive this (animal health product) business, sell the business, or shut it down. We are currently in talks with four to six parties to discuss potential collaboration or divestment. If no deal materialises, then we will close it down. For sure, we will have to make a decision this year,” he says. Teo, 40, was appointed as managing director and CEO of the group in June 2020, before being redesignated to his current position in February 2022.

He has been involved in businesses in various industries, including furniture, aquaculture, licensed money lending, information technology and property investment.

Apart from Teo, Sunzen’s two other substantial shareholders are Chen Kim Lian (9.5%) and Chum Mun Cuan (5%).

It is worth noting that ACE Market-listed waste management company JAG Bhd, through its investment holding company JAG Capital Equity Sdn Bhd, also has a 1.75% stake in Sunzen.

Sunzen generated a net profit of RM3.69 million in the first nine months ended Sept 30, 2023 (9MFP2024), slightly above its full-year net profit of RM3.64 million in FY2022.

In November last year, the group changed its financial year-end to June 30 from Dec 31. Sunzen’s next set of audited financial statements will cover a period of 18 months from Jan 1, 2023 to end-June this year (FP2024).

Drawing interest

Sunzen group executive chairman Ching Chee Pun points out that many investors and fund managers have started to realise the upside potential of Sunzen, where profitability will be driven by its human health products and loan financing services divisions. 

“If you look at our 9MFP2024 results, our human health products division reported a profit before tax of RM2.45 million while our loan financing services division generated a PBT of RM8.81 million. However, our animal health product division made a loss before tax of RM4.33 million. In other words, our group’s financial performance is being dragged down by the animal health product segment,” he says.

Shares of Sunzen have gained 45% over the past one year to close at 29 sen apiece last Thursday, giving it a market capitalisation of RM204.4 million. The counter is currently trading at a historical price-earnings ratio (PER) of 45 times.

In comparison, its animal health product peers such as Rhone Ma Holdings Bhd and Yenher Holdings Bhd are trading at lower PERs of 12 to 13 times. Among its financial services peers, Aeon Credit Service (M) Bhd is trading at seven times and ELK-Desa Resources Bhd at 15 times.

Ecolite Biotech operates a production plant in Batu Pahat, Johor, on land measuring five acres. It produces healthy beverages, tonics and essences. Its subsidiary Yanming Resources is capable of processing and producing over 400kg of net bird’s nest every month, leading to exports of seven tonnes per year.

“Since the Covid-19 outbreak, people are becoming more health conscious. Nowadays, we are more willing to spend money on human health products, including health supplements, traditional Chinese medicine, as well as herbal health food and beverage products,” says Ching.

Finsource Credit, which was acquired by Sunzen for RM6.8 million in 2021, is providing business loans of up to RM10 million for a financing period of seven years, at an interest rate of 12% per year.

Teo says that Finsource Credit is targeting the financially underserved market that consists of businesses that may have difficulty accessing credit from mainstream lenders. “Finsource Credit could fulfil our customers’ financing needs with our property-secured loan. They could mortgage their residential or commercial properties and get a quick and hassle-free loan from us.

“From our perspective, our risk is minimal because the loan is backed by properties. Even if there is bad debt, it’s just a matter of time that we can gain back the money because we could eventually sell the properties.”

Teo eyes IPO for private venture Goodnite by 2028

Teo also owns Goodnite International Sdn Bhd, a mattress and bedding accessories manufacturer based in Kapar, Selangor, in his private capacity.

“In 2017, I became one of the major shareholders of Goodnite, a bedding manufacturer that I currently helm as group managing director and [for which I] oversee the overall operations,” he says.

Goodnite International, better known as Goodnite Group, is a group of companies primarily involved in the manufacturing, trading and distribution of bedding products and furniture in Malaysia.

A check on the Companies Commission of Malaysia (SSM) website shows that Teo holds a controlling stake of 80% in Goodnite International. The remaining 20% stake is owned by his 60-year-old business partner Chew Kean Huat. Both are directors of the company.

Teo says Goodnite Group is aiming for an initial public offering (IPO) on Bursa Malaysia by 2028. “We initially intended to inject Goodnite Group into Sunzen, but then we realised that Goodnite Group is too big for Sunzen to absorb.

“In terms of profitability, Goodnite Group is at least three times larger than Sunzen, and it is big enough to go for listing by itself on the Main Market of Bursa. And in fact, that’s what we plan to do by 2028.”

Teo adds that he has been actively involved in the execution of the business expansion plan through the incorporation and acquisition of some upstream and downstream outfits to diversify Goodnite Group’s businesses to include foam and latex manufacturing, bed frame manufacturing, sofa manufacturing, office furniture trading, sales, hire purchase and factory outlets.

“We bought over Goodnite in 2017, and today it is a one-stop company that manufactures and retails bedding solutions and furniture in Malaysia. Our group employs about 700 people. Among all the businesses that I am involved in, I would say Goodnite is my largest company,” he says.

Goodnite International saw its net profit grow by 41% to RM19.78 million in the financial year ended June 30, 2022, up from RM14.04 million in FY2021. Its revenue rose 19% to RM195.927 million in FY2022 compared with RM165.142 million in the previous year.

Prior to that, the company was in the red for three financial years, registering a net loss of RM1.05 million in FY2018, RM3.74 million in FY2019 and RM846,365 in FY2020.

“Goodnite International’s annual turnover is about RM200 million at the moment, and we are still in an expansion mode. I think the ideal time for us to go for an IPO is when we hit the RM500 million mark,” says Teo.

Teo’s first business venture was in 2006, when he started The Ring Telecommunication, a retailer of mobile phones. About six years later, he established Phoenix Arowana Breeders Sdn Bhd, an aquaculture company involved in arowana fish farming, marketing and distribution. In 2015, Teo established Finsource Credit — formerly known as Finsource Solution Sdn Bhd — a moneylending company.

A year later, he set up Avex Consulting Sdn Bhd and Avex Technology Sdn Bhd, which are principally involved in software development for local businesses.  

 

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