Sedania aims to disrupt FMCG giants' hold on market

Incorporated in 2013, ACE Market-listed Sedania Innovator Bhd (KL:SEDANIA) may be seen as a newcomer to the consumer products landscape, but it has big ambitions.

The company, which has a market capitalisation of some RM52 million, aspires to be a disruptor in the fast-moving consumer goods (FMCG) space, in which global brands have existed for more than a century.

Sedania is the owner of Offspring, a premium baby-product brand, and wellness brand Tanamera.

"Malaysia doesn't have its own multinational company in the FMCG space. We aspire to be that. We will make sure that we provide products that are free from chemicals and nasties that companies don't talk to you about. That has been our mantra.

"Our belief is that we can be a disruptive brand to all these 100-year-old brands by ensuring we have very strong unique selling points, being aligned to consumers' digital behaviours and conscious about the earth," Sedania founder and managing director Datuk Noor Azrin Mohd Noor tells The Edge in a recent interview.

While Sedania has three core business segments- sustainable FMCG, sustainable consumer technology and sustainable energy - it is the FMCG segment that contributes the most, or 70%, to the group's revenue. The bulk of it comes from Offspring, which is 100% designed and made in Australia.

In 2021, Sedania acquired a 51% majority stake in Offspring from Sedania Corp Sdn Bhd (SCSB), a private vehicle of Noor Azrin, for RM15.11 million. SCSB currently holds the remaining 49% stake in the FMCG brand. Noor Azrin is Sedania's largest shareholder, with a total equity interest of 31.48%, of which 29.95% is directly held by SCSB.

Offspring-with its proposition of being Australian-made, eco-friendly and organic- is counting on the mass-affluent to grow its market share. Noor Azrin says the change in society's expectation of consumer products has created an opportunity for Offspring to tap into the niche market of digital-savvy mothers who, concerned about potential chemical harm to their babies' skin, are seeking organic, eco-conscious products.

Noor Azrin believes this segment is an area in which well-established FMCG companies are unable to pivot towards because of their current position in the mass market.

He explains: "They (FMCG MNCs) cannot abandon their current positioning in the mass [market] business just to come and compete in our space that caters for sensitive skin. There's a lot of risk for them. There will be new players that would want to be in this space, we can't stop that. So, we just need to make sure that we scale up with speed and make this our own space."

Noor Azrin admits that Offspring caters largely for the affluent. He sees it as a mass prestige brand, for which demand should be relatively inelastic during periods of economic downturn.

The next market that Sedania is looking to scale up in with its premium baby product brand is Indonesia, on account of its huge population and large affluent consumer base. Noor Azrin is confident that Offspring's "made in Australia" branding, along with its eco-friendly and organic push, will be able to woo the affluent crowd in Indonesia.

Offspring is in 26 countries, but its biggest market is still Malaysia. For the 18-month period ended June 30, 2024, Offspring's revenue amounted to RM53.66 million, which is 68.7% of the group's total revenue.

There is an ongoing court case in relation to Offspring, in which two individuals claim to have 49% equity interest in the issued and paid-up share capital of Offspring Inc Sdn Bhd (which holds the Offspring brand) via a shareholder agreement entered into between the plaintiffs and SCSB.

Noor Azrin says the duo's claims are fictitious and there are no grounds for them. He alleges that the conflict transpired as a result of former disgruntled employees at SCSB who had access to documents at SCSB, and who then tried to blackmail the company with it.

"We've hired a tier-1 lawyer and I'm willing to go up to the federal court to make sure that this is properly dealt with because it's my credibility at stake. Sedania Corp has fully indemnified Offspring against any liability; if anything happens, Offspring will not be affected at all," he says, emphasising that there is no risk to shareholders and that the matter will not affect the public-listed entity in any way.

The other brand in Sedania's portfolio is 51%-owned Tanamera. Sedania completed its 51% acquisition of Tanamera Tropical Spa Sdn Bhd and manufacturing company FA Herbs Sdn Bhd in 2023.

While Tanamera is associated with postnatal care and wellness, FA Herbs makes all Tanamera products.

FA Herbs has three local manufacturing facilities and is also a contract manufacturer for more than 250 clients.

Noor Azrin sees Tanamera and Offspring as complementary: The former offers postnatal wellness and the latter Offspring caters for babies' needs.

Sedania is looking into cross-selling the two brands to its customers. Offspring, with its more superior points of sale, is in discussions with vendors and partners to bring Tanamera into the picture as well, both locally and overseas.

Sedania recently secured a five-year contract with another partner in China for its Tanamera products, where the latter will be the distributor for all 600 of its postnatal centres.

"Tanamera has a much higher propensity to scale, much larger than Offspring," Noor Azrin says, pointing to how the former's products cater for a wider group of consumers.

Sedania is poised to significantly boost its FMCG brand awareness, allocating an eight-figure marketing budget for the financial year ending June 30, 2025. This investment is fueled by the gains from increased sales and improved earnings.

"Over the next three years, our cumulative marketing investment will surpass this amount, strategically balancing growth and market share without overextending our resources," says Noor Azrin.

The group is on the lookout for complementary brands to add to its sustainable FMCG line, but Noor Azrin is a firm believer of the "buy low, sell high" approach, as he is not keen to pay premium prices for them.

"There's no rush. I know where we are today and that we will grow. So, if a product or brand comes around, where it's the right time for us, we'll take it at a price that we think is a 'buy"," he says.

Hibah potential

While the FMCG segment is a fast-growing business for the group, Sedania's sustainable consumer technology segment also has Noor Azrin excited.

In 2023, the group acquired a 20% stake in Wasiyyah Shoppe Bhd, which is in the business of Islamic inheritance planning. Through its exclusive partnership with Wasiyyah, Sedania has developed a digital hibah platform, dubbed JOMHIBAH, which provides end-to-end digital solutions for Islamic inheritance planning.

While inheritance claims for non-Muslims is a relatively simple process, especially where there is an existing will, the claiming of inheritance for Muslims is often seen as a tedious and complicated process, from documentation to execution of the inheritance.

"Hibah penetration is only at 0.2% today. That is why there are some RM90 billion in unclaimed assets today. It is a huge problem among the Muslim community in this country because when a Muslim husband dies, the surviving family will be deprived of the assets of the husband (if there is no hibah)," says Noor Azrin.

He says that while Sedania's associate focuses on the retail aspect of the business, similar to the way insurance agents would operate, Sedania will focus on marketing its JOMHIBAH platform to institutions.

It has seen some early success, announcing a partnership with Hong Leong Islamic Bank Bhd this year.

Noor Azrin says there are three other banks that Sedania is close to signing with, and several others with which it is in serious discussion. Besides the financial institutions, it also plans to tie up with bodies, such as Tabung Haji and other travel agencies that handle pilgrimages, to provide JOMHIBAH as a service to pilgrims.

He estimates the potential of this market at more than RM500 million, though he acknowledges that it will take time to fully tap into it. Educating people about hibah is crucial for unlocking this segment's growth.

Sustainable energy bid

Under its sustainable energy segment, Sedania is working on its intelligent energy management system, or what it calls GreenBack, which aims to provide a comprehensive and transparent energy billing management. This is done by enabling a thorough assessment of the energy consumption of each energy user in a building and evaluating the appropriate tariff and billing for each user.

The proprietary technology will enable users to save on energy consumption.

Noor Azrin says users who have been encouraged by the energy audit, which has resulted in a re-evaluation of their tariff paid, will be easier to persuade to agree to an energy performance contract (EPC) with Sedania, under which it will continue to help improve the efficiency of the users' energy consumption.

In an EPC, the company that delivers the energy savings is remunerated based on the level of energy savings it achieves.

Sedania has achieved success with its first commercial building, having helped the owner claim a RM1 million refund from an energy bill that was overpaid. The group is now looking to engage with more building and factory owners on this proprietary platform to tap this market.

Noor Azrin recognises the urgency for Sedania to introduce this solution swiftly to stay ahead of potential competition, especially as the value of platforms such as Green Back becomes apparent.

For the 18-month period ended June 30, 2024, Sedania recorded a revenue of RM78.1 million but suffered a loss after tax of RM2.8 million, owing to a one-off impairment loss in its sustainable energy segment and an increase in operational costs.

Despite the challenges, Noor Azrin remains optimistic about Sedania's future, confident that it will return to profitability as early as FY2025. The group is targeting a revenue increase to RM250 million within the next three years.

Year-to-date, Sedania's share price has shed 36% to close at 14 sen last Wednesday (Nov 20). It has a price-earnings ratio of 14 times, based on its trailing 12-month earnings. - The Edge