In which year did we first invest?
We first invested in Mega in 2017.
Where is their head office?
The head office is in Bangkok, Thailand.
Holding at period end:
It is 2.5%.
What does the company do?
This Thai company produces and sells nutritional products and prescription drugs domestically and across frontier markets, with a leading position in Indochina. Its Maxxcare brand covers prescription and OTC drugs, while its Mega We Care brand offers nutritional products.
Why do we like the investment?
Strong brand equity counts for a lot. The company has built a strong brand in Southeast Asia for its Mega We Care brand, making it a trusted producer of supplements and pharmaceutical products in the region, in the same league as Australia’s Blackmores. Several of Mega’s brands are ranked no. 1 in their respective categories, while others were consistently ranked in the top five in the home market of Thailand as well as in countries like Myanmar and Vietnam.
Mega focuses on being the first mover into a market for both its We Care and Maxxcare businesses, and niche markets at that. This discourages competitors from entering once there is an incumbent of its size. For instance, its long-established distribution network in Myanmar and Vietnam gives access to more than 50,000 and 26,500 retail outlets, respectively. In such frontier markets, regulations are getting tougher and it is becoming harder to get regulatory approvals from various countries, but in a way this benefits Mega, as it raises the entry barriers for new competitors. Branding is even more important in the pharmaceutical space and it also translates into high pricing power.
Mega has maintained high margins over the past several years, while growing revenue. This is because it is able to charge relatively attractive prices versus pharmacies, hospitals, clinics, health practitioners and physicians, yet still at a cheaper level than imported pharmaceutical products. Mega’s operating cash flow has been positive over the years, underpinning a net-cash balance sheet. In the wake of the pandemic, demand for immunity boosting products, such as supplements, has risen sharply. Although such sales are likely to normalise somewhat as pandemic effects recede and economies recover, Covid19 has increased awareness of nutraceutical products and we would expect some of the higher demand to be sustained. There are also broader structural trends in Asia that support demand, as an increasingly affluent middle class turns more health conscious on the back of rapidly ageing populations.
We see Mega’s businesses benefiting from these longer-term trends. For a company that sells products promoting health and well-being, Mega prides itself on being a people-centric organisation, too, with a “People First” culture listed as one of its competitive strengths. In addition to regular salaries, bonuses and provident funds, Mega provides staff awards based on years of service and medical insurance, along with diet and healthy living planning. It also pays heed to environmental laws in its production process and in dealing with hazardous materials, receiving green industry certification for its facilities in Thailand. Its green initiatives include the move to more energyefficient lamps, as well as the use of chilled chlorofluorocarbon-free water for its air-conditioning units and solar power in its operations.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.