(Corrects 'expected' to 'latest' in P/E comment in paragraph 8)
* Regional market seen up 50 pct to near $4 bln by 2017
* Indonesia's Sido Muncul charms investors with debut surge
* SE Asia firms offer cheaper valuations than China peers
By Eveline Danubrata and Anshuman Daga
JAKARTA/SINGAPORE, Dec 20 On rainy days in
Jakarta, a canny street merchant like Emi can sell two dozen
sachets of herbal cold cure Tolak Angin to office workers and
labourers sniffling by her roadside stall.
"Herbal medicine is good for the body because it's natural,"
says Emi, who goes by only one name. Laced with ginger, cloves
and mint leaves, the traditional remedy Emi sells for 25 cents
apiece is also good for business: The company that makes Tolak
Angin went public this week and is worth around $850 million.
Shares in PT Industri Jamu dan Farmasi Sido Muncul Tbk
jumped as much as 24 percent when it became the first
herbal medicine company to list in Jakarta on Dec. 18. With
Chinese peers now trading at premium prices, Sido Muncul is just
the latest in a crop of Southeast Asian traditional medicine
firms with big plans to grow amid strong investor interest.
Global pharmaceutical companies from Pfizer Inc to
Roche Holding AG have long pinpointed Asia as a source
of future growth as incomes rise. The traditional medicine
market of Southeast Asia is also coiled to leap as an
increasingly health-conscious middle class rises in the region.
Stacked with products that claim to cure anything from
rheumatism to sexual dysfunction, the market for traditional
medicine in Southeast Asia is projected to grow to $3.9 billion
by 2017, nearly 50 percent more than this year, according to
research firm Euromonitor International.
While the ingredients in traditional medicines may be
advertised as natural and enjoy historical acceptance in Asia,
they don't meet with universal approval. Health regulators in
places like Britain have warned of high concentrations of
elements like mercury in some products, and conservation groups
say some use ingredients taken from endangered animals.
Still, alongside the maker of Tolak Angin - 'Repel the Wind'
in Indonesian - firms in the region including Singapore's Eu Yan
Sang International Ltd and Malaysia's Power Root Bhd
are drawing the attention of investors.
Shares in Eu Yan Sang and Power Root trade at 18.75 and
15.05 times their latest earnings, respectively. That's far
below the average of 76.38 times for a group of eight listed
Chinese traditional medicine makers, according to data from
Thomson Reuters StarMine.
Sido Muncul's bright yellow Tolak Angin sachets are a staple
of Indonesian TV advertising campaigns featuring beaming local
celebrities. They're sold at hundreds of thousands of street
stalls across Indonesia like Emi's, known as 'warung', as well
as supermarkets and pharmacies.
The company, whose name means 'Realized Dream', began life
in 1940 as a tiny business operated by Rahmat Sulistio and her
three assistants in Yogyakarta, a city in the central Java
Over 70 years later, the company's IPO was 11.4 times
over-subscribed. At its latest trading price, its market
valuation was around $850 million.
Sido Muncul has posted annual sales growth of around 10
percent on average in the last few years and aims to launch new
herbal drinks, Irwan Hidayat, the grandson of Sulistio and head
of the company, told Reuters. It plans to use IPO proceeds of
around 870 billion rupiah ($72 million) to develop new products
and increase manufacturing capacity.
"This is the industry of the future, a sunrise industry. If
we talk about health, there will always be demand," Hidayat said
in an interview. "This country also has extraordinary natural
resources, so the supply of raw materials is not a problem."
Patrick Walujo, co-founder of Singapore-based private equity
firm Northstar Group, said he favours consumer-driven businesses
in Indonesia. "Herbal medicine products may have to be adjusted
for exports, but the sector is attractive," he said.
Some traditional medicine makers already have significant
exposure to overseas markets.
At Singapore's Eu Yan Sang, Hong Kong accounted for 47
percent of revenue in the three months ended September.
Singapore contributed 22 percent, while the rest came from
Malaysia and Australia.
The company's flagship products, derived from traditional
Chinese medicine formulas, include Bak Foong pills for treatment
of menstrual pain and Bo Ying compound, designed to help
children with a poor appetite and other illnesses.
"The Chinese are now able to afford more and more expensive
herbs. There is an overall worldwide interest in forms of
natural wellness," said Richard Eu, a fourth-generation family
member who now heads the business.
The founder's family are majority shareholders of Eu Yan
Sang, while Aberdeen Asset Management PLC holds just
over 12 percent through an Asian unit.
POWER ROOT SURGE
In Malaysia, Power Root makes Tongkat Ali drinks that it
says can boost male virility. It reported profit after tax of
35.3 million ringgit ($10.9 million) for the year ended February
2013, more than double a year earlier.
Its shares have jumped more than 60 percent this year,
outperforming the 9 percent rise in the broader Kuala Lumpur
Stock Exchange. The company said stronger exports to
markets like the Middle East and North Africa boosted earnings,
and it plans to expand in Southeast Asia.
Yet the traditional medicine sector has come under scrutiny
from global health regulators. Several ingredients in some
medicines are alleged to contain high levels of toxins or
chemicals despite being promoted as natural. In August, a UK
regulator warned people not to use a number of unlicensed
traditional Chinese medicines after they were found to contain
"dangerously high" levels of lead, mercury and arsenic.
Some traditional Chinese medicines have also come under fire
from animal rights groups as they use ingredients from
endangered animals such as bear bile, crocodile penis and deer
"We are asking the consumers to avoid using medicines from
endangered animal parts. There are many alternative medicines
which do not pose a threat for biodiversity," Nazir Foead,
conservation director at WWF in Indonesia, said in comments
emailed to Reuters.
At her street stall in Jakarta's central business district,
Emi says customers regularly stock up on Sido Muncul's Tolak
Angin. White or blue collar, young or old, many claim they
prefer it to cold medicines made by big pharmaceutical
companies, she says.
"If it's chemical, my worry is that it will ruin the body,"
says the 40-something street trader. "I've been drinking this
since I was a girl."
($1 = 12,115.00 Indonesian rupiahs)
($1 = 1.2559 Singapore dollars)
($1 = 3.2390 Malaysian ringgits)
(Additional reporting by Fathiya Dahrul, Andjarsari Paramaditha
and Christania Astri in JAKARTA, Tripti Kalro in BANGALORE and
Clement Tan in HONG KONG; Editing by Emily Kaiser and Kenneth