Carotech Bhd’s technology not easily replicated by rivals

By Yvonne Tan

CAROTECH Bhd was set up in 1992 by managing director David Ho to develop phyto-pharmaceutical and nutraceutical products.

The company was listed on the Mesdaq market on April 15, 2005.

Ho’s research on palm oil-based phytonutrients, which began in 1992, resulted in a commercially viable extracting process that Carotech proceeded to patent.

The firm's first plant, said to be the first and biggest globally, was then set up to produce the products in 1995.

Carotech's core business essentially involves the manufacture of phytonutrients from palm oil, utilising specialised high vacuum-low temperature distillation technology.

Europe is said to be the company’s largest market, contributing more than 70% of sales, with the rest of its business coming from primary markets including the US, Japan and Australia.

David Ho

While recent record crude palm oil prices have dampened sentiment on the stock, which was once favoured by analysts thanks to the robust demand for biodiesel globally, the fundamentals of the company remains relatively unchanged.

First, Carotech has the technology that is not easily replicated by its rivals due to high level of research and development.

It also enjoys its “early bird” status in the industry as barriers to entry to the phytonutrients and biodiesel industries are relatively high.

Carotech's outlook is backed by the European Union's ambitious target of 2%, 5.75% and 20% for biodiesel conversion for transport purposes (on energy content basis) by 2005, 2010 and 2020 respectively, according to a SBB Securities report.

The company's edge over other biofuel producers is also on its reliance on vitamin products, which contributed 25% to 30% of sales last year. The sale of vitamins is an important margin of safety for it should crude oil prices continue to fall.

Meanwhile, the risks for Carotech include an uptrend in CPO prices and a sharp fall in crude oil price, which would make the production of biodiesel less viable.

Carotech is a listed subsidiary of Hovid Bhd, a pharmaceutical company also controlled by Ho.

Carotech employees conducting the extraction and processing of nutrients from palm oil at the company’s laboratory in Chemor