BCM eyes earnings growth

Company to grow medical device and industrial laundry businesses

BCM Alliance Bhd plans to grow its medical device business and expand the industrial laundry segment to achieve an earnings growth which has so far eluded the company.

Since its listing on the Ace Market back in October 2016, BCM’s profits have marginally dipped. Its share price is also below its initial public offering (IPO) price of 19 sen per share and the stock’s market capitalisation remains at around RM70mil.

However, BCM has a healthy balance sheet – with net cash of around RM18mil, most of which are from its listing proceeds – and that is probably why it is using a portion of that money to grow.

BCM is a trader and distributor of laundry equipment which they sell to laundrette outlets as well as to hotels and hospitals.

This makes up 63% of the group’s revenue.

Its other main business is the sale of medical devices that include imaging and surgical equipment.

BCM’s outstanding order book for both business segments as of August 31, 2017, amounts to RM49.38mil. As part of its plan to grow its medical equipment sales, BCM is proposing buy 51% of Cypress Medic Sdn Bhd for RM1.72mil in cash. BCM’s target for 2018 is to raise the revenue contribution from medical devices to 50%.

BCM Alliance managing director Liaw Chong Lin (pic) says they are focussed on growing their businesses and to transfer to the Main Market of Bursa Malaysia “in one to two years’ time”.

On the proposed acquisition of Cypress Medic, it should be noted that the deal is a related party transaction, whereby Liaw and other key management personnel of BCM are selling some of their holdings in Cypress to BCM.

Liaw explains that the rationale for buying Cypress is for BCM to expand its product offerings. Cypress’ forte lies in the distribution of blood pressure monitors, nebulisers, thermometers, and body fat monitors.

“The group will also expand its customer base in the retail market, such as pharmacies in Malaysia, which is the current focus of Cypress.

“Furthermore, Cypress is currently the authorised distributor of Rossmax to distribute its range of products,” BCM had stated in its Bursa stock filings.

Cypress supplies medical devices to 220 pharmacy retail outlets, 48 medical equipment dealers and two wholesale medical equipment dealers, with notable names like Caring Pharmacy, Multicare Health Pharmacy, and RedCap Pharmacy.

The acquisition of Cypress also comes with a profit guarantee of RM600,000 for the first year.

Upon completion of the proposed acquisition, the top shareholders of Cypress shall comprise BCM at 51.03%, Cypress managing director Law Soo Chin at 14.67%, Liaw at 9.72%, and BCM executive director and group head of finance Hew Chun Shun at 9.28%, who is also the head of administrative and human resources.

For the financial year ended Dec 31, 2016, being the full set of financial results available, Cypress registered a net profit of RM463,463.

The proposed acquisition is pending shareholders’ agreement and is expected to be completed by the first quarter of 2018.

Business plans ahead

Aside from its planned acquisition of Cypress, Liaw says BCM regularly brings in new brands to add to its range of medical product offerings.

In fact, the group is in the midst of finalising details of a distributorship for cardiac-related devices, to be completed next month.

“The key segments of patient care that shall drive demand for the medical devices industry are patients who are ageing, have cardiac-related conditions or are cancer-stricken.

“We are in talks with a few medical device manufacturers to secure more distributorships,” says Liaw.

Apart from trading and distributing medical devices, BCM is also involved in the after sales service and maintenance of the devices.

Private healthcare providers make up an estimated 80% of BCM’s clientele, which include KPJ Healthcare and Columbia Asia.

“We are ranked first in Malaysia for our after sales and back-up service.

“Say if an MRI scanner in a hospital is down, we are able to get it up and running within 24 hours.

“Unless a specific component in the machine has been damaged and we require the parts to be shipped from another country, then it might take us several days instead,” says Liaw.

Being in the distribution space, BCM Alliance is subjected to risks of short-term contracts.

For example, distribution agreements and service contracts generally have short tenures, averaging at one to two years.

However, BCM Alliance banks on its track record, having been a long term distribution partner to several brands, with some partnerships established for 14 to 15 years, like Hitachi Medical.

Additionally, under the Medical Device Act 2012 (Act 737), clients who purchase medical devices from distributors are mandated to seek after sales services from the same distributor.

Hence, BCM Alliance is further protected from competition by third party service providers and is ensured of renewed service contracts.

“This act is enforced beginning January 2018, and also applies to the trade of certified and registered medical devices.

“This weeds out the sale of substandard and uncertified medical devices, particularly in the pharmacy market,” says Liaw.

According to BCM, the medical devices industry is expected to enjoy a compounded annual growth rate (CAGR) of 11.2% from 2017 to 2020.

While the coin-operated laundry segment growth is still going strong, BCM is shifting its focus to the industrial laundry segment in hospitals and the hospitality industry.

The commercial laundry equipment industry in Malaysia stood at RM201.1mil in 2015 and is expected to reach RM271.3mil in 2020, with a forecast CAGR of 4.3% from 2016 to 2020, the company says.

The group is involved in the supply, testing, installation, and commissioning of commercial laundry equipment.

“Urbanisation, increasingly busy and time-poor lifestyle has led to a rising popularity of self-service launderettes. Besides that, there is increasing demand from the hospitality industry, with large amount of linens to be laundered from lodging and accommodation, food, and recreational amenities,” says Liaw.

As of last September, BCM had supplied commercial laundry equipment to a total of 933 launderette outlets across Malaysia.