Asian Phytoceutical

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Asian Phytoceutical is a producer of healthcare and beauty products. Its healthcare products are aimed at combating cancer, HIV, diabetes, eczema, and arthritis, among others.

It has been profitable every of the last 10 years, and has paid increasing dividends.

Dividends (in million baht)

FY09: 20
FY10: 31
FY11: 50
FY12: 50
FY13: 54
FY14: 40
FY15: 115
FY16: 95
FY17: 129

The company has an average ROA of 17%, does not have any debt, carries very few liabilities, generates as much FCF as profits, has negligible receivables, and is able to take 4 months to settle its payables. Everything looks amazing.

The only problem is that the company does not sell its products to pharmacies, hospitals, and clinics. It sells its products directly to the consumer, and then relies on said consumer to sell to other consumers. 

A manufacturer of any product usually assigns an agent to distribute its product. Or create their own distribution infrastructure, under a separate business unit. This allows the manufacturer to be able to focus on improving its product, and forecast the production volume. There is feedback on sales volume from the retailer to the distributor, and then to the manufacturer. If the retailer is unable to sell the products, they will stop buying from the distributor, which then buys less from the manufacturer.

In an MLM channel, there is no strict differentiation between consumer and distributor/retailer. Since any unsold inventory can be resold to a recruit (or new retailer), there is no effective feedback on recurring market demand for the product. The company could be very effective in marketing its products to one-time buyers. We cannot be sure.

There could be recurring market demand for Asian Phytoceutical's mangosteen/garcinia based health products, but since we cannot not know for sure, that makes Asian Phytoceutical a highly speculative prospect.

If the company distributed its products in the conventional manner, it would have been quite a perfect company.

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