Sunzen Biotech Bhd is on track to break even this year and aims to achieve profitability in 2022, after incurring losses for three years, according to group managing director and CEO Teo Yek Ming.

       Teo tells StarBizWeek that in the near term, the group is optimistic about growing profits for its traditional Chinese medicine, herbal health foods and beverages and bird’s nest segment as well as the recently acquired small and medium enterprise loan financing unit.

       It also aimed to break even in its manufacturing and trading of animal health product business.

       For the first half of financial year ending Dec 31, 2021 (FY21), Sunzen’s revenue from its animal health product segment increased almost 10% year-on-year (y-o-y) to RM7.37mil.

       The ACE Market-listed group, which is headquartered in Kota Kemuning, Shah Alam, saw revenue from its traditional Chinese medicine segment for the first half of FY21 jumped 138% to RM36.1mil, due to higher sales orders for contract manufacturing.

       Its animal health product and trading of crude palm oil (CPO) product segments reported lower losses, while the traditional Chinese medicine segment posted a pre-tax profit of RM1.9mil compared with a pre-tax loss of RM1.6mil a year ago.

       In a filing with Bursa Malaysia recently, the group said higher commodity prices resulting in rising livestock feed prices, complemented by controlled selling prices of certain livestock, have resulted in breeders implementing cost-cutting measures on nutritional products.

       “Hopefully, our health product segment can break even soon. It is affected by the hike in commodity prices and there is only so much extra costs that can be passed on to our customers, who can slow down or stop their purchases,” says Teo.

       For the first half of FY21, Sunzen posted a 29.35% y-o-y rise in revenue to RM44mil, while net loss narrowed to RM40,000 (from a RM4.26mil net loss a year ago).

       The better results in the first half of FY21 were also partly due to a gain on disposal of property, plant and equipment of RM952,000.

       The group told Bursa Malaysia recently that its asset rationalisation measures included the disposal of non-core properties such as a three-storey factory building on a freehold industrial land in Kota Kemuning, Shah Alam, on April 21, 2021.

       This has enabled a cost saving of RM600,000 per annum arising from term-loan interest and operating costs.

       Other cost-cutting exercises included discontinuing the operations of eight of its traditional Chinese medicine segment’s retail outlets (one outlet each in Johor Baru, Ampang, Bukit Mertajam, Kepong and Kedah and three outlets in Penang).

       “After we took over, we cut a lot of unnecessary costs. By selling the property, we save a lot on the interest costs. The current two lots here (in Kota Kemuning) are enough for us,” says Teo.

       Teo, who owns close to 13% stake in Sunzen as at April 22, 2021, heads a new management team that took over the group in mid-2020.

       Based on Sunzen’s Annual Report 2020, the 36-year-old Teo is an entrepreneur and savvy investor who has over 10 years of experience in managing businesses including in the one-stop furniture industry, aquaculture, licensed money lending, information technology and property investment.

       The new management team also includes 49-year-old group executive director Ching Chee Pun, who is a chartered accountant and has over 15 years’ experience in the areas of audit, tax planning, financial accounting, corporate financial planning, business advisory, education and corporate training.

       “Our CPO segment is affected by price volatility and uncertainty. We won’t close it down but will take advantage of market opportunities when they occur.

       “Now, we want to focus on businesses where the market demand fundamentals are strong – which are the traditional Chinese medicine and the loan financing segments.

       “There is strong demand for healthcare products due to the Covid-19 pandemic,” says Ching.

       Meanwhile, Sunzen is aiming to grow its SME loan financing unit, Finsource Solution Sdn Bhd, which it bought on June 1, 2021 for RM6.8mil. The deal was satisfied by the allotment and issuance of 41.21 million new ordinary shares in Sunzen at an issue price of 16.5 sen.

       The acquisition of Finsource Solution comes with a guaranteed profit after tax of not less than RM2mil for FY21 and FY22.

       The deal is deemed as a related-party transaction due to the interest of Teo and Ching.

       In 2015, Teo had set up Finsource Solution, a money lender licensed under the Moneylenders Act 1951, while Ching is a director in the company.

       “There is stable and recurring income, as our clients have taken up loans of up to 10 years.

       “We only do secured lending, backed by collateral. Due to the Covid-19 pandemic, we have seen higher demand for loan financing from SMEs,” says Ching, adding that Finsource Solution’s competitive strengths include its fast approvals and disbursement.

       In September, to raise funds to finance the expansion of the money lending business, Sunzen proposed a private placement of up to 20% of its issued shares (or up to 134.1 million new Sunzen shares) as at Sept 24, 2021. This is expected to raise gross proceeds of RM24.1mil to RM28.2mil.

       Sunzen recently told Bursa Malaysia that due to the Covid-19 pandemic, SMEs are experiencing cashflow issues and Finsource Solution has seen rising applications for business loans.

       From June till Sept 24, Finsource Solution has approved RM18.6mil of secured business loans while another RM10mil of secured loans are currently under credit assessment.

       On average, RM4.65mil of loans were approved monthly between June and September 2021.

       Sunzen also told Bursa Malaysia that the group’s borrowing level is low, with gearing at 0.05 times as at June 30, 2021.

       Coupled with Sunzen’s unaudited cash and cash equivalents of RM42.26mil as at June 30, 2021, the expected proceeds from the proposed private placement is sufficient for its money lending business to remain adequately funded.

       “We have been in the business (of money lending) for five years. We will grow its profits once we inject more funds,” says Teo.

       On its animal health product segment, Sunzen told Bursa Malaysia that it plans to launch new products targeting the immune system for swine next month.

       In September, Sunzen signed a three-year international distributorship agreement with its principal, which is based in the United States, for the immune system products.

       From the proposed private placement proceeds, RM1mil will be allocated for promotion and marketing of the immune system products, as well as participation in roadshows and trade fairs in China and Asean (initial targets are Thailand and Vietnam) within 18 months.

       Also, up to RM2.61mil of proceeds will be allocated to support working capital requirements.

       As for its traditional Chinese medicine segment, this year Sunzen had launched new herbal health food and beverage products such as sachets of red dates, bird’s nest and wolf berry.

       Teo points out that the group’s subsidiary Yanming Resources Sdn Bhd, which processes and exports raw bird’s nests, is running at almost 100% capacity.

       Production activities for the group’s Ecolite brand, which is among Malaysia’s largest manufacturers of Chinese medicinal health and bird’s nest products, is also running at near-full capacity, he says.

       Ecolite products are also exported to China, Hong Kong, Indonesia and Singapore.

       About 70% of Ecolite sales are from Malaysia, with the balance from exports.

       “Moving forward, we aim for overseas sales to hit 40%. Singapore is an important market for us. China is the biggest market for raw bird’s nests and we are licensed to export up to 4.6 tonnes of raw bird’s nests annually,” says Teo.

       The group, via its subsidiary Sunzen International Sdn Bhd which develops overseas markets and downstream derivative products of bird’s nests, is also going into value-added bird’s nest products such as coffee, mooncake and stewed bird’s nests where margins are better compared with raw bird’s nests.

       “Going forward, we are very positive about the business outlook for Sunzen. We are looking at factory direct-to-consumer models in our turnaround strategy.

       “We are also open to potential mergers and acquisitions that are related to our businesses,” says Teo.