Industry and Competition in the alternative medicine

market
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The industry that the Group is generally competing in is a broad range industry of alternative medicine
that essentially covers all type of medicine and healthcare products outside the realm of conventional
modern medicine. This chapter will discuss further on the healthcare industry in general, and then
channel its focus on the TCM industry and the type of competition that the Group is facing.

Healthcare Industry Overview

In early the early years, traditional medicines have been the foundation of the healing of human
disease and they are acquired from natural sources such as plants, animals and minerals. Today, rising
interests are focusing back on these natural remedies. Apart from the fact that cost of modern
healthcare are rising, growing cases where mainstream medicine failed to cure certain diseases has
resulted to peoples interests in traditional medicine.
Over the last decade, the countrys pharmaceutical market at large grew annually at between 8% and
10%. However the market still depends to a large extent on imports. According to Malaysian
Organisation of Pharmaceutical Industries (MOPI), there are around 296 manufacturers in the country
currently licensed by the Drug Control Authority. 87 of them are licensed to produce pharmaceutical
products, 148 manufacturers are licensed to produce traditional medicines and 61 are producing health
products for cosmetics.
According to the World Bank, the global market for herbal medicine worth USD 19.6 billion in 1996,
USD 24.2 billion in 2002 and is projected to reach USD 5 trillion by 2050. This is in regards of the wide
acceptance and awareness of the value of herbal medicine by global market. And Economist
Intelligence Unit reported that the herbal medicine sales at a rate of 10% yearly in the international
market.
In the domestic market, Malaysian herbal industry is estimated to be worth approximately RM 8 billion
and is expected to grow at 10% per annum. It has been consistently reported by World Health
Organisation (WHO), that significantly 80% of the worlds population relies on herbal medicine and
that 25% of prescription drugs are actually extracted from plants. Apart from direct herbal
manufacturing, there are other developing market segments from the TCM industry including home
spas, herbal clinics as well as pre and post-natal care using local herbal products. Consequent to this
fact, Malaysian government is aggressively positioning itself as an herbal hub where local and foreign
companies can carry out research to develop more TCM products for healthcare and other related
applications.

Industry products
The domestic pharmaceutical industry comprises of manufacturers engaged in the operation of drug
production from research, development to licensing. According to MOPI, Pharmaceutical products
manufactured by the local industry can be generally categorized into:
Prescription
Over-the-counter (OTC)
Traditional medicines

Health and Food supplements

Sales of the prescription medicines with patented and generic drugs are restricted to doctors and
pharmacists prescription, while OTC, traditional medicines and health and food supplements is allowed
to be sold by non-professional outlets to the public.
According to Ministry of Health, DCA recorded at the end of 2005 a cumulative total numbers of drug
registration applications received are 28,546 for traditional medicines alone.

Industry Research & Development

Major growth of the healthcare industry over the last few years is a strong prominence by local
manufacturers on research and development, principally in areas of product innovation and
improvement. It is also a result of manufacturers strong emphasis in bio-pharmaceutics and natural
products. Malaysia is recognized to be one of the countries to have excellent infrastructure and facilities
and is well versed with the technology advancement in the pharmaceutical and healthcare industry.
Companies are leveraging on the advantages exist in Asian countries in the field of bio-manufacturing
as well as out-sourcing services. They are utilizing them to steer the growth in drug discovery and
research. Especially in Asia-Pacific, governments and companies are working rigorously to move from
competing on cost to developing home grown innovative pipelines. Businesses are implementing
creative models to rise above capital constraints and other obstacles. Firms are reinvesting revenues
from services to build up innovative pipelines, and are entering deals to hasten global
commercialization effort to steer economies of scale and boost global competitiveness.
Driving on these facts, there is no doubt that biotechnology will be further emphasized as key growth
area in Malaysia, and given its rich biodiversity, companies will compete to place themselves to benefit
from the efforts towards exploiting biotechnology for profitable ventures. The same goes to agro-based
industry, where emphasis on large scale commercial farming is also seen as a potential growth area to
be developed by the government.

Industry Regulation
Drug Control Authority of the Ministry of Health requires all medicines being traded in the country to be
registered. Hence, all manufacturers, importers and wholesalers have to comply with the licensed and
are subjected to standard and random inspection by DCA inspectors. In order to be licensed,
manufacturers must obey the strict code of GMP, which is presently based on the Pharmaceutical
Inspection Co-operation Scheme (PIS) as well as the Pharmaceutical Inspection Convention (PIC).
For the OTC medicines, registrations for the prescription require verification of several measures
including effectiveness and safety and they have to go through a stringent testing. DCA inspectors will
also carry out a regular random post-marketing administration.
Medicines in Malaysia are regulated under several Drugs Acts. Thus, any type advertisements for
medicines entail prior authorization by the Medicines Advertisement Board. As a member of the World
Trade Organizations (WTO), Malaysia has agreed to the Trade-Related Aspects of Intellectual
Property Rights (TRIPS) agreement which protects registered patents and copyrights to protect local
products.

Industry Forecast
Despite a comparatively small population, Malaysia's healthcare spending ranks fifth among other
selected Asian countries. It is growing at about 13% annually. This shows that Malaysians are moving
towards a trend of an increasingly healthy lifestyle. Such trend guarantees to create many
opportunities for Malaysia's pharmaceutical companies to cater to the increasing demands. The

industry is forecasted to grow to reach RM 1, 800 million by the year 2013, at an approximately CAGR
of 10.5%. This is supported by potential investments anticipated from foreign companies in the
outsourcing of clinical research.

Hai-O Competitors
Hai-O Enterprise Berhad runs in the drugs, proprietary, and sundries sector of the healthcare industry.
As majority of its products are Chinese medicine, the Group major competitors are mainly the TCM
providers from China. The Groups local competitors are majority the MLM peers who are also offering
healthcare products in their sales mix. The following table is showing the Groups main competitors by
segments.
Table 5: Competitors by Segment
Segment
Company
Country
Retail
Guangzhou Pharmaceutical Co Ltd
China
Eu Yan Sang International Ltd
Singapore
MLM
Amway (Malaysia) Holdings
Malaysia
Manufacturing
Pharmaniaga Bhd
Malaysia
Wholesale
Yunnan Baiyao Group Co Ltd
China
Source: Company
Table 6: Key Industry Competitors 2009 Revenue Comparisons
Company
Net Revenue (USD)
Market Capital (USD)
Pharmaniaga Bhd

953.85M
155.36M
Yunnan Baiyao Group Co Ltd
838.32M
4.31B
Guangzhou Pharmaceutical Co Ltd
516.68M
1.28B
Amway (Malaysia) Holdings Bhd
200.86M
368.03M
Eu Yan Sang International Ltd
158.45M
140.1M
Hai-O Enterprise Bhd
131.67M
275.95M
Source: Affin Investment Bank

Pharmaniaga Bhd
Pharmaniaga Berhad is the largest incorporated local healthcare organization in Malaysia. Founded in
1994, Pharmaniaga's key activities are manufacturing of generic pharmaceuticals, logistics and
distribution, sales and marketing, supply of medical products and services as well as hospital
equipping. Pharmaniaga sells its products and services to the public and private sectors mostly in
Malaysia and Indonesia. The companys products are Innoherb, a health supplement from France,
Ticlopidine, an anti-stroke supplement, Clarithromycin Suspension, an antibiotic for bacterial infections
in children, Itraconazole, a drug for fungal infections and Paracetamol C&F, an antidote for colds and
flu.
Like Hai-O Group, the company ventures into Indonesia market by acquiring a 55% interest in PT
Millennium Pharmacon International Tbk (MPI). MPI is the Indonesian distributor of pharmaceutical
and healthcare related products for local and foreign principals. MPI has a nationwide distribution
network of 24 branches. Some of MPIs major principals include Merck, Meiji Indonesia and Lapi
Laboratories.

Yunnan Baiyao Group Co Ltd

Yunnan Baiyao Group Co Ltd produces traditional Chinese medicine mainly in the People's Republic of
China. Its key product is the well-known Yunnan Baiyao, a traditional medicine remedy for pulmonary
bleeding associated with tuberculosis, gastric and intestinal bleeding. The company offers its Yunnan

Baiyao series in assorted dosage type such as powder, capsule, tincture, aerosol, adhesive bandage,
rub cream, and plaster. Other products sold by the company are Notagingseng series and Ethnic
medicine series made from herbals or plants. Hai-O Group has also acquired an exclusive distribution
of Yunnan Baiyaos products, under the brand name of Yun Feng, to be distributed in Malaysia and
Indonesia.

Guangzhou Pharmaceutical Co Ltd

Founded in 1997, Guangzhou Pharmaceutical is a manufacturer of Chinese patent medicine in the
Peoples Republic of China. It is a subsidiary of Guangzhou Pharmaceutical Holdings Limited and
owns 96 retail chain pharmacy outlets in China. The company manufactures approximately a 1,500
type of TCM as well as modern pharmaceutical products. Among those products are the national
protected TCM and the companys own exclusively made products. The company also involved in
scientific research, industry and trade in China.
Some products of Guangzhou Pharmaceutical are Amoxicillin Capsules, Hua Tuo Zai Zao Wan, Wu Ji
Bai Feng Wan, Xiao Ke Wan, and Xia Sang Ju Granules. In September 2008, Guangzhou
Pharmaceutical Holdings Limited has formed a 50/50 joint venture company, Guangzhou
Pharmaceuticals Corporation (GP Corp) with Alliance Boots Holdings Limited, a UK pharmaceutical
company.

Amway (Malaysia) Holdings Bhd

Founded in 1976, Amway Malaysia is the top direct selling company in Malaysia with a distributor force
of 195,000 nationwide. They involve in trading products under the principal name Amway, originated
from the US. These products are nutrition and wellness products, including food supplements and
beverages under the brand Nutrilite. The product mix also includes skin care and cosmetics under the
brand Artistry, personal care products under the brand Glister and Satinique, as well as home care
products. Amway has a strong presence in Malaysia as a result to its reputable brand name that is
recognized worldwide. A new concept, Amway Shops, is practised by the company as part of its current
expansion exercise in Malaysia. It has enhanced consumer access to Amway products and provided
greater exposure for the Amway brand. Like Hai-O Marketing Sdn Bhd, Amway Malaysia is founder
member of the Direct Selling Association of Malaysia (DSAM).

Eu Yan Sang International Ltd

Founded in 1879, Eu Yan Sang International Ltd is a Singaporean company. It involves in the
manufacturing, processing, distribution, retail, and sale of traditional Chinese and other medicine. The
company also produces medical pills and capsules as a mediator for various pharmaceutical products
and also offers integrative medical services. Like Hai-O Group, the company involves in the property
investment activities as well. In addition to the product mix, Eu Yan Sang sells food and beverages as
well as manufacturing and distribution of spa products. The company also involves in the development
of iGates, an advanced technology to decode chemical components in traditional Chinese medicine. It
operates a network of 154 retail outlets in Singapore, Malaysia, Hong Kong, Macau, and China. The
company also owns approximately 20 traditional Chinese medicine clinics in Singapore and Malaysia,
and an integrative medical centre in Hong Kong. Eu Yan Sang is the closest competitor to Hai-O with a
relatively high market capitalization.

Hai-O Future Plans

The Group is increasing its FY10 and FY11 earnings forecast upwards by 15% to 26% to respectively
RM 85.2mil and RM 100.2mil. One of the factors is because of the increasing sales from the MLM
division, with increasing number of members by 10,000 per annum. Other reason is due to the stronger
RM against the US dollar.

The Group allocates about RM 5 million a year for A&P activities and plans to fully utilize its existing
marketing tools. There is also plan to allocate more budgets for advertising and promotion activities.
The recent contract with Yunnan Baiyao is anticipated to flourish the business even further. The Group
is convinced that the Yunnan Baiyao products would be well-received in Malaysia and is able to record
yearly sales of at least RM 10 million.
Overall, the Group is optimistic on its growth and targets a high raise in net profit for FY2010 as well as
its earnings per share. Net interest expense for FY2010 is expected to be more or less even with
FY2009. The Group expects its cash flow to remain strong to support investments in more areas of the
business.