Hyphens Pharma International Limited

[dreamybear]

1H23 results seem to confirm that FY22 was an outlier year for Hyphens Pharma. The goods under consignment (mainly for Vietnam's Specialty Pharma Principals) have further reduced from 1.4mil (end FY22) to 399k. After a 27% YoY reduction in revenue from Vietnam, does the reduction in goods under consignment suggest that there are more headwinds to come from Vietnam?

~ A surprise 11mil of dividend declared, which is ~30% of their cash hoard. One would have thought they would hoard the cash to use it for acquire new distribution businesses and scale up. Interesting to see this "special payoff" coinciding right after 2 founders (Chairman CEO/Tan and NED Tan Kia King) buying out the previous ED Tan's 12% stake. These 2 founders have ~76% stake and to date, they have demonstrated well alignment with OPMIs.

I think one pertinent question (though we probably won't know the answer) might be why did ED Tan choose to sell out and at this time considering :
- isn't he one of the key figures in the company  
- he has been involved in company's Vietnam ops 
- cldn't he have retained a small stake esp if he feels the prospects are bright (perhaps for passive income + potential upside)

Like yourself, I am also puzzled by the quantum of div payment considering the growth stage of the company. Comparing with the historical div payments, it can be considered exceptionally high. Cldn't the buyers have used personal loans instead ? Is the company hitting a snag in its growth or are the founders confident that it is the dawn of a new era ?

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IPO : https://www.hyphensgroup.com/wp-content/...cument.pdf
"...Inomed Holding acquired a 25.0% shareholding interest in Hyphens Singapore in September 2001. This marked our expansion into the specialty pharmaceutical industry. By January 2004, Inomed Holding, Pan-Malayan and Mr. Tan Chwee Choon collectively held the entire issued share capital of Hyphens Singapore...

....Our Executive Director, Mr. Tan Chwee Choon, is responsible for managing our operations in Vietnam...."

[banker]

1H23 results seem to confirm that FY22 was an outlier year for Hyphens Pharma. The goods under consignment (mainly for Vietnam's Specialty Pharma Principals) have further reduced from 1.4mil (end FY22) to 399k. After a 27% YoY reduction in revenue from Vietnam, does the reduction in goods under consignment suggest that there are more headwinds to come from Vietnam?

~ A surprise 11mil of dividend declared, which is ~30% of their cash hoard. One would have thought they would hoard the cash to use it for acquire new distribution businesses and scale up. Interesting to see this "special payoff" coinciding right after 2 founders (Chairman CEO/Tan and NED Tan Kia King) buying out the previous ED Tan's 12% stake. These 2 founders have ~76% stake and to date, they have demonstrated well alignment with OPMIs.

I think one pertinent question (though we probably won't know the answer) might be why did ED Tan choose to sell out and at this time considering :
- isn't he one of the key figures in the company  
- he has been involved in company's Vietnam ops 
- cldn't he have retained a small stake esp if he feels the prospects are bright (perhaps for passive income + potential upside)

IPO : https://www.hyphensgroup.com/wp-content/...cument.pdf
"...Inomed Holding acquired a 25.0% shareholding interest in Hyphens Singapore in September 2001. This marked our expansion into the specialty pharmaceutical industry. By January 2004, Inomed Holding, Pan-Malayan and Mr. Tan Chwee Choon collectively held the entire issued share capital of Hyphens Singapore...

....Our Executive Director, Mr. Tan Chwee Choon, is responsible for managing our operations in Vietnam...."

Mr Tan  joined  IDS. With these, it could be more headwinds in VN 

https://www.idsmed.com/vn-en/team.html

[dydx]

Hyphens' revenue and PBT numbers for 3Q, 4Q in FY22 and 1Q in FY23 were badly affected by severe global supply change problems - caused by Covid, the Russia-Ukraine war, trade realignment of The West's trade with China, global inflation, etc. - experienced in the pharmaceutical trade, i.e. there was market/customer demand and business orders, but shortage and not enough goods from the principals. The problems have started to normalise, and this is evidenced by Hyphens' latest revenue numbers for 2Q-FY23, which have gone back up to the level achieved in 2Q-FY22.

Tan Chwee Choon's retirement is mainly driven by his age (66 this year), and his previous 12.32% founder's interest in Hyphens has been sold to Chairman/CEO Lim See Wah and Non-Executive Director Dr Tan Kia King (both also founders) at $0.28/share. I would interpret his joining IDS recently as just an opportunity for his "last burst of fire", before full retirement. I really don't see him doing things to hurt Hyphens' business in Vietnam.

Hyphens' overall business is well-established under proven management competence of Chairman/CEO Lim See Wah, and it should continue growing steadily over time.

[weijian]

@dreamybear,

The 2 founders bought out their ex-partner's 12% stake for 28cents - translating to around 10mil outlay. With this special interim dividend of ~11mil where they will be entitled 76% of, the proceeds can foot the majority of their 10mil bill. This mode of operation is not unlike many unsuccessful Mgt take-overs which eventually had to declare dividends to pay back their bridging loans used in the takeover.

It doesn't seem like Tan Chwee Choon is ready for retirement. If he was, it would probably be some "consultant" role responsible to provide guidance/advice but probably wouldn't be accountable to the business - something like what Kenny Chan of TheHourGlass did. Tan's job description on the IDS Med website sounds like he has heavy accountability to turn around the business, and there is clear differentiation with the local Viet Mgt. The owners at IDS probably see Tan's past contacts and network as critical to helping them turn around a distribution-based business

[dreamybear]

@dreamybear,

The 2 founders bought out their ex-partner's 12% stake for 28cents - translating to around 10mil outlay. With this special interim dividend of ~11mil where they will be entitled 76% of, the proceeds can foot the majority of their 10mil bill. This mode of operation is not unlike many unsuccessful Mgt take-overs which eventually had to declare dividends to pay back their bridging loans used in the takeover.

Thanks for your reply.

Yes I am aware of this mode of operation. However, we are talking abt using 1/3 of the cash in possibly the next "sea change" environment. Why not use lesser e.g. 1/4 ? Cash flow is like the lifeblood of the company, and cash hoard its reserve blood bags ? (if I may put it that way). I believe HPIL is still a small player compared to the likes of Zuellig, DSKH, etc. Landing new distributionship from principals and expanding to more countries is quite capital intensive, involving "hits and misses". Also, how much firepower does that leave for accretive and sensible M&A to improve its profit margins ? Then there is the expansion plans for the digital healthcare platform. ( https://media.licdn.com/dms/document/med...iItmnHGWrE) 

That said, I believe OPMIs are not complaining abt the present. It remains to be seen how fast the cash hoard can be replenished.

Back to the mode of operation, I am getting rather concerned about more companies following a certain method practiced by a certain company - high pay and no dividends, to avoid sharing cash with OPMI. Is there anything that can prevent this practice ? 

ED Tan was appted by idsMED on 1 May 2023* which was very shortly after HPIL AGM, which suggests it cld be a planned move. With ED Tan's previous HPIL stake, a mere 10 cents share price increase in the event of HPIL's future improved financial performance will net a cool few million dollars. This is excluding dividends as well as his ED remuneration. I think it is likely that he sold off to prevent a conflict of interest which seems a lot to give up for such a move and also considering he could have retained a small stake even if he retires.

*idsMED Group Appoints Mr. Tan Chwee Choon as the New Regional Director In-Charge of Vietnam
https://www.idsmed.com/news/idsmed-group.../1215.html

Vietnam's Real Estate just COLLAPSED! (goes Terribly WRONG)
https://www.youtube.com/watch?v=ZACF150vToE

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@dydx : Glad that you have joined the discussion for this stock. Hopefully HPIL interests you enough to continue sharing your wisdom and keen insights. It will be very much appreciated. 

Yes, 2Q23 revenue has regained back to 2Q22 level*(which may/cld have been an exceptional year for HPIL going by past records), while PAT was a tad lower.

*HPIL 1H2023 Briefing (pg9)
https://links.sgx.com/FileOpen/Hyphens%2...eID=769590

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pricing power concerns ?

What you should know about Hyphen Pharma Latest Result
https://www.investingnote.com/posts/2665342 (emphasis added)
"...
Challenges Ahead:
- Mr. Lim See Wah, the Executive Chairman and CEO, commented on the challenging macroeconomic environment that has impacted their business, including supply chain disruptions. Although these disruptions are being actively managed, the repercussions are expected to linger into the latter half of 2023.

- It proved to be difficult to pass the increased cost to the customers...."

Do note the interesting comments on the above post :
"...Company seemed unable to command a premium for its goods & services as shown by its low single digit PAT margins. Its strategies of growing their distribution portfolio are not likely to bear any fruit to improve its bottom line as the market the company is operating in is highly competitive and the company’s products & services do not offer any compelling differentiation from the rest of the market....  

....The company needs to dig deep into the ecosystem it is operating in to uncover where the value resides and craft out appropriate business models to fully extract this value. Otherwise, it will be unable to break out of the shackles of mediocrity...."

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Also warmly welcome other VBs to join in the discussion.

[dydx]

Hyphens' 90% SG subsidiary DocMed Technology (wherein Metro Holdings in May22 invested $6.0m via pref shares), through its 100% SG subsidiary Pan-Malayan Pharmaceuticals with its largest B2B online medical and pharmaceutical hypermart (first established in 2001) - trading under www.pom.com.sg - for healthcare professionals in SG, is expanding into the region..
https://www.linkedin.com/posts/docmed-te...er_desktop

and recently has established operations in M'sia nd Vietnam..
https://www.linkedin.com/posts/timothy-c...er_desktop
https://www.linkedin.com/posts/timothy-c...er_desktop

[dreamybear]

Hyphens' 90% SG subsidiary DocMed Technology (wherein Metro Holdings in May22 invested $6.0m via pref shares), through its 100% SG subsidiary Pan-Malayan Pharmaceuticals with its largest B2B online medical and pharmaceutical hypermart (first established in 2001) - trading under www.pom.com.sg - for healthcare professionals in SG, is expanding into the region..
https://www.linkedin.com/posts/docmed-te...er_desktop

Seems $5m out of Metro's $6m has been spent ? 

Year of investment and challenges
https://www.hyphensgroup.com/wp-content/...lenges.pdf
"... DocMed remains at an investment stage with around S$5mn of spending on recruitment, technology and expansion into new countries...."

I wonder what is the economics of the business which provides medications delivery to patients within 3 hours, how much is the target group prepared to pay for such services and what are its plans for scaling - hopefully not branching into some sort of logistics player ...
https://www.linkedin.com/posts/docmed-te...96097-6QI1

[dreamybear]

Company's growth plans for its various segments seem intact ....

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Nabota® successfully registered in Malaysia
https://links.sgx.com/FileOpen/Hyphens-N...eID=771071

New Joyful Gummies launch by Ocean Health
https://www.linkedin.com/posts/hyphens-p...64832-iJe7

https://www.linkedin.com/posts/docmed-te...15168-qJ8F
DocMed Technology expands its footprint to Vietnam, launching VietPOM, the first B2B virtual medical hypermart in the country...

[weijian]

When a customer walks into a 7-11, it is probably for a FMCG - a cigarette, alcohol, snacks, soft drinks and the like. 711 makes money on satisfying System1 of our brain - impulse and convenience. Regardless of how tasty it can be, supplements satisfy System2 of our brain. Not a lot of people walk into 711 with System2 of their brain functioning

The OceanHealth SKUs are shown to be selling for 20-24bucks per bottle in the PR. People who are ready to spend this much - will generally have their mindshare on sin stuff like cigarettes and alcohol.

Hyphens Pharma partners 7-Eleven to offer Ocean Health® supplements at selected convenience stores in Singapore

This collaboration marks the first time the Group is entering the convenience store distribution channel and the first collaboration with 7-Eleven Singapore at their own invitation. The presence of Ocean Health® products at 7-Eleven convenience stores will further increase the market visibility and market penetration for the brand.

https://links.sgx.com/FileOpen/Announcem...eID=786029

[dydx]

Another addition to the group's range of skin health products...
https://www.linkedin.com/posts/cogent-co...er_desktop