For the longest time, Enviro-Hub stuck to what it knew best, which was e-waste recycling. However, volatility in commodity prices and low margins have forced it to look elsewhere in the healthcare sector.
Adrian Toh, Enviro-Hub’s chief investment officer (CIO) and executive director, says he is always on the lookout for new opportunities and has set his eyes on the glovemaking and pharmaceutical business.
In 2021, Enviro-Hub invested more than $50 million in Pastel Glove, paying in a mix of cash and shares at 8 cents each. Pastel Glove also owns a 40% stake in another joint venture company Pastel Care, whose key business activities include the retail sale of pharmaceuticals and medical and orthopaedic goods
Pastel Glove has four production lines with an annual production capacity of one billion gloves and other types of personal protective equipment (PPE). They are now running at 84% utilisation and there are plans to expand capacity.
However, with Covid-19 turning endemic, Toh says the demand for gloves has softened and average selling prices have come down from record high levels. The company has therefore signed longer-term contracts of between six months and a year with customers, instead of selling on the “spot” market.
In addition, Pastel Glove is focusing on the manufacture of cheaper latex gloves as there is an oversupply of nitrile gloves in the market. This happened after many glove makers switched to the product because of higher selling prices but could not switch back fast enough without incurring higher capex.
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“We are heartened to have a better grip over latex glove buyers, having adapted to trends early,” says Toh, adding that Pastel Glove is now fully focused on making latex gloves.
Enviro-Hub has seven R-Pharmacy outlets in Malaysia and plans to open 25 outlets by next April. Photo: The Edge Singapore
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From pharmacies to telemedicine
Enviro-Hub is also allocating more resources to the development and expansion of R-Pharmacy, its bricksand-mortar pharmacy chain in Malaysia. While this might seem to go against the trend of online shopping. Toh says having physical stores has its advantages.
“Focusing on in-person services in pharmacies will allow us to stand out from other pharmacies in Malaysia that currently do not offer many service elements that consumers are looking for,” says Toh.
He explains that the pharmacy landscape in Malaysia is rather different than that of Singapore as Singaporeans would much rather head straight to a general practitioner (GP) than consult a pharmacist.
R-pharmacy will therefore offer an array of services ranging from having pharmacists present to attend to customer enquiries and offer personalised advice to facilities for blood tests and even a counselling room for mental wellness care. Plans to offer e-prescription and telemedicine are also in the works.
“Patients will be able to call doctors online, who will then check with patients on existing conditions and medicines that they have taken before or are already taking. These options will be much cheaper and time-efficient for consumers as opposed to queuing for hours at hospitals,” says Toh.
On Dec 3, Enviro-Hub will open its eighth R-Pharmacy outlet and plans to open 25 outlets by April 2023 and 90 outlets by December 2024. Toh has estimated an average capex of RM500,000 to RM600,000 ($153,000 to $180,500) per store, which the company intends to fund internally.
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Already, Enviro-Hub’s healthcare segment has contributed positively to its earnings. In its latest 1HFY2022 ended June results, Enviro-Hub recorded earnings of $739,000, up 43.2% y-o-y from $516,000 from 1HFY2021. This comes on the back of a 29% y-o-y rise in revenue to $22.8 million for 1HFY2022 from $17.7 million the previous year. Sales from the recycling business grew 14.6% y-o-y while the healthcare segment posted revenues of $3.3 million. Gross profit was also up 82.1% y-o-y to $5.5 million for 1HFY2022 from $3 million the year before, while gross profit margins expanded from 17.1% in 1HFY2021 to 24.1% in 1HFY2022.
Becoming asset-light
Besides waste management and healthcare, Enviro-Hub also has a piling business and some investment properties.
“The piling business is a legacy business which does not cost us much in general so our focus has always been to take it out of our books at some point,” explains Toh.
The company also has no plans to channel more resources into its investment properties segment, which consists mainly of strata units in the Lam Soon Building in Hillview. “We will look into selling the properties after evaluating whether the prices are right,” says Toh. “Property prices have gone up quite substantially since the recovery from Covid-19, which is a good thing.”
By streamlining its businesses, Enviro-Hub expects to lighten its balance sheet. Already, net gearing has improved from 1.56x in FY2020 to 0.48x in FY2021 due to the disposal of $63 million worth of investment properties in FY2021. Net gearing further dropped to 0.45x in 1HFY2022. More importantly, this gearing down can free up resources for the healthcare and recycling business.
For FY2022, management expects a 50% y-o-y jump in e-waste recycling revenue from new customers. By 2HFY2022, Enviro-Hub expects to expand its e-waste processing capacity by 40% from 3,600 to 5,100 tonnes per year to cater to a larger volume of e-waste.
In an unrated note on Oct 11, CGS-CIMB Research analyst Izabella Tan is upbeat about Enviro-Hub’s prospects.
Tan says : “ Enviro-Hub differentiates itself through inhouse pharmacists who provide personalised advice and high-quality customer service. By branding itself as a premium service, Enviro-Hub captures revenue from the sale of pharmaceutical products and listing of stock-keeping units (SKUs) and advertisements such as posters and vending machines in its pharmacies.”
Similarly, SAC Capital Research analyst Yeo Peng Joon is also optimistic about the company’s diversification efforts. In his unrated report dated Oct 13, Yeo notes that Pastel Glove’s co-founders — Law and Choo Kuan Ping — have over 20 years of industry experience each.
As for the company’s pharmacies, Yeo notes: “Management is scaling up their distribution centre to extract higher economies of scale as more stores start to operate … Half of the procurement team are pharmacists who can identify more efficacious products, thereby lifting sales.”
Year to date, shares in EnviroHub have fallen some 30% to trade at 4.9 cents, giving it a market cap of $79.8 million and a P/E of 23.5.
After the acquisition of Pastel Glove, Law Siau Woei, Enviro-Hub’s key partner in this venture, is now the second-largest shareholder at 18.5%. He comes after EnviroHub’s executive chairman Raymond Ng, who remains the company’s largest shareholder at 28%. Law also holds the remaining 60% of Pastel Care.
Cover photo: Enviro-Hub
