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Big growth in Tongkat Ali business

December 24, 2013

The Tongkat Ali business is growing and with demands from Middle East and North Africa and in South-east Asia it is set to be the industry of the future.

KUALA LUMPUR: Power Root Bhd, which makes Tongkat Ali drinks, has more than doubled its after-tax profits this year to RM35 million with increasing exports to the Middle East and North Africa.

Its shares have jumped more than 60% this year, outperforming the 9% rise in the broader Kuala Lumpur Stock Exchange.

Still, alongside the maker of Tolak Angin – ‘Repel the Wind’ in Indonesian – firms in the region including Singapore’s Eu Yan Sang International Ltd and Power Root are drawing the attention of investors.

Shares in Eu Yan Sang and Power Root trade at 18.75 and 15.05 times their latest earnings, respectively. That is far below the average of 76.38 times for a group of eight listed Chinese traditional medicine makers, according to data from Thomson Reuters StarMine.

Power Root Bhd said stronger exports to markets like the Middle East and North Africa boosted earnings and it plans to expand in Southeast Asia.

At Singapore’s Eu Yan Sang, Hong Kong accounted for 47% of revenue in the three months ended September. Singapore contributed 22%, while the rest came from Malaysia and Australia.

The company’s flagship products, derived from traditional Chinese medicine formulas, include Bak Foong pills for treatment of menstrual pain and Bo Ying compound, designed to help children with a poor appetite and other illnesses.

South-east Asian traditional medicine firms have with big plans to grow amid strong investor interest.

Global pharmaceutical companies from Pfizer Inc to Roche Holding AG have long pinpointed Asia as a source of future growth.

The traditional medicine market of South-east Asia is also coiled to leap as an increasingly health-conscious middle-class rises in the region.

Stacked with products that claim to cure anything from rheumatism to sexual dysfunction, the market for traditional medicine in South-east Asia is projected to grow to US$3.9 billion by 2017, nearly 50% more than this year, according to research firm Euromonitor International.

While the ingredients in traditional medicines may be advertised as natural and enjoy historical acceptance in Asia, they don’t meet with universal approval.

Health regulators in places like Britain have warned of high concentrations of elements like mercury in some products, and conservation groups say some use ingredients taken from endangered animals.

On rainy days in Jakarta, a canny street merchant like Emi can sell two dozen sachets of herbal cold cure Tolak Angin to office workers and labourers by her roadside stall.

“Herbal medicine is good for the body because it’s natural,” says Emi, who goes by only one name.

Laced with ginger, cloves and mint leaves, the traditional remedy Emi sells for 25 cents apiece is also good for business: The company that makes Tolak Angin went public this week and is worth around US$850 million.

Shares in PT Industri Jamu dan Farmasi Sido Muncul Tbk jumped as much as 24% when it became the first herbal medicine company to list in Jakarta on Dec 18.

With Chinese peers now trading at premium prices, Sido Muncul is just the latest in a crop of Southeast Asian traditional medicine firms with big plans to grow amid strong investor interest.

Sido Muncul’s bright yellow Tolak Angin sachets are a staple of Indonesian TV advertising campaigns featuring beaming local celebrities.

They’re sold at hundreds of thousands of street stalls across Indonesia like Emi’s, known as ‘warung’, as well as supermarkets and pharmacies.

The company, whose name means ‘Realized Dream’, began life in 1940 as a tiny business operated by Rahmat Sulistio and her three assistants in Yogyakarta, a city in the central Java region.

Over 70 years later, the company’s IPO was 11.4 times over-subscribed. At its latest trading price, its market valuation was around $850 million.

Sido Muncul has posted annual sales growth of around 10% on average in the last few years and aims to launch new herbal drinks, Irwan Hidayat, the grandson of Sulistio and head of the company, told Reuters. It plans to use IPO proceeds of around 870 billion rupiah (US$72 million) to develop new products and increase manufacturing capacity.

“This is the industry of the future, a sunrise industry. If we talk about health, there will always be demand,” Hidayat said in an interview. “This country also has extraordinary natural resources, so the supply of raw materials is not a problem.”

Patrick Walujo, co-founder of Singapore-based private equity firm Northstar Group, said he favours consumer-driven businesses in Indonesia. “Herbal medicine products may have to be adjusted for exports, but the sector is attractive,” he said.

Some traditional medicine makers already have significant exposure to overseas markets.

– AFP


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