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TABLE OF CONTENTS

1.0 INTRODUCTION 3
2.0 ORGANIZATION BACKGROUND 3
3.0 CORPORATE MANAGEMENT 5
3.1 BOARDS OF DIRECTORS 6
3.2 BOARDS ROLES AND RESPONSIBILITY 11
3.3 SHAREHOLDERS 11
4.0 EXTERNAL ASSESMENTS 13
4.1 POLITICAL, GOVERNMENT AND NATURAL ENVIRONMENT 13
FORCES
4.2 ECONOMIC FORCES 14
4.3 SOCIAL, CULTURE, DEMOGRAPHIC, AND NATURAL 15
ENVIRONMENT FORCES
4.4 TECHNOLOGICAL FORCES 15
4.5 COMPETITIVE FORCES 16
4.5.1 RIVALRY AMONG COMPETING FIRMS 16
4.5.2 POTENTIAL ENTRY OF NEW COMPETITORS 17
4.5.3 POTENTIAL DEVELOPMENT OF SUBSTITUTE 17
PRODUCT
4.5.4 BARGAINING POWER OF SUPPLIERS 17
4.5.5 BARGAINING POWER OF CONSUMERS 17
5.0 INTERNAL ASSESMENTS 19
5.1 MANAGEMENT 19
5.2 MARKETING 19
5.3 FINANCE 19
5.4 OPERATION OR PRODUCTION 21
6.0 STRATEGIC FACTORS ANALYSIS 23
6.1 SWOT ANALYSIS 23
6.2 TOWS MATRIX 24
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6.3 RATIO ANALYSIS 25
7.0 ALTERNATIVE STRATEGIC AND SELECTED STRATEGY 30
8.0 IMPLEMENTATION OF STRATEGY 31
9.0 STRATEGY APPRAISAL AND CONTROL 33
10.0 CONCLUSION 35
11.0 REFERENCES 36

















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1.0 INTRODUCTION

Power Root Berhad, an investment holding company, engages in the manufacture and
distribution of beverage products principally in Malaysia. The company offers coffee and tea
products; energy drinks; cereal drinks; flavoured drinks; isotonic drinks; and chocolate malt
drinks, as well as Tongkat Ali and Kacip Fatimah drinks. It also distributes health and beauty
products. In addition, the company is involved in the property development and construction
activities. Power Root Berhad also exports its products. The company was formerly known as
Natural Bio Resources Berhad. Power Root Berhad was founded in 1999 and is headquartered in
Kuala Lumpur, Malaysia.

2.0 ORGANIZATION BACKGROUND

Power Root (M) Sdn Bhd was founded on 23 July 1999 in Johor Bahru, Johor. It is a
leading company to develop and promote herbal energy drinks fortified with two main rainforest
herbs: Eurycoma longifolia Jack or commonly known as "Tongkat Ali" and Labisia Pumilia and
Pathoina or "Kacip Fatimah". These herbs are indigenous to Malaysia and its properties for
promoting physical well-being are highly regarded by Malaysians.Power Root (M) Sdn. Bhd. is
now a subsidiary of a public listed company. Power Root Berhad (formerly known as Natural
Bio Resources Berhad), a company listed on the Main Market of Bursa Malaysia Securities
Berhad with the determination to promote these local products in the international markets. The
company operates in local and export market. The local market relates to sales to customers
within Malaysia. the export market relates to sales to overseas customers with Middle East Asia
being the principal market segment. Power Root has invested heavily in research and
development of these traditional herbs to create its own brand of products. In March 2001, Power
Root established a marketing branch in Kuala Lumpur to better coordinate its logistic and serve
its customers more effectively. In 2003, Power Root started its very own manufacturing plant in
Johor Bahru to cater for growing demands. An 18-acre phase 1 manufacturing facility is
expected to be completed early 2008, incorporating modern production technology to cater for
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the strong market demand locally, business development opportunities abroad and new
formulations development. Power Root with its entrepreneur spirit, is committed to provide
consumers with the ultimate choice of a high quality product. Concentrated efforts in research
and development to develop new and improve existing products have also accelerated its success
in the market. As such, the company was able to quickly establish a stable business foundation
and thus, creates a very promising future for the company.
In the span of the last few years, Power Root has established a strong and aggressive
marketing network in Malaysia. These high quality products combined with aggressive
promotional and marketing campaigns have made Power Root a leading brand in the Malaysia
market. On the export front, Power Root has tie-ups with foreign distributors in the countries
where its products are marketed as in Korea, Indonesia, Singapore, China, Hong Kong, Taiwan,
Japan, Thailand, Brunei and Middle East. With its acute awareness of shifting lifestyle trend, the
company will continuously improve and target the market with different products.

Mission : To produce high quality products that exceed customers' expectations, which
will subsequently improve the quality of its customers lifestyle
Vision : Power Root want to expand its product in the international markets and
ultimately, to make its brand "Power Root" a household name globally.







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3.0 CORPORATE MANAGEMENT

BOARD OF DIRECTORS


















Independent Non-Executive Chairman
Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.

Managing Director
Dato Low Chee Yen

Executive Director
Dato How Say Swee

Executive Director
See Thuan Po

Independent Non-Executive Director
Ong Kheng Swee

Non-Independent Non-Executive Director
Datuk Sarchu bin Sawal

(Alternate Director to Y.M. Tengku
Shamsulbhari bin Tengku Azman Shah, SMK.)
Dato Tea Choo Keng

Executive Director
Dato Wong Fuei Boon
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3.1 BOARDS OF DIRECTORS BACKGROUND

Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.
Independent Non-Executive Chairman
Y.M. Tengku was appointed as our Independent Non-Executive Chairman on 2 February 2007.
He is also the member of the Audit Committee and the Chairman of the Nomination and
Remuneration Committees.Y.M. Tengku graduated with a Diploma in Finance from the Institute
of Cost & Executive Accountants, London. He is the director and shareholder of several private
companies undertaking the businesses of manufacturing, logistics management and construction.
He is also the Vice President of the Persatuan Pedagang dan Pengusaha Melayu Malaysia,
Negeri Selangor and Ketua Bahagian Negeri Selangor Persatuan Bekas Pasukan Keselamatan
Negara, Malaysia. Y.M. Tengku does not have any family relationship with any Director or
substantial shareholder of the Company, nor does he have any conict of interest with the Group.
He does not hold any other directorships in other listed entities and has not been convicted of any
offences within the past ten (10) years. He attended 4 out of 4 Board meetings held during the
nancial year ended 28 February 2013.

Dato Low Chee Yen
Managing Director.
Dato Low Chee Yen was appointed as our Managing Director on 2 February 2007. He was also
a member of the Nomination and Remuneration Committees. He is one of the founding members
of the Group and has 13 years of experience in the food and beverage industry. He started his
career in direct marketing before venturing into his own business producing drink concentrates in
1998. With his vision and belief on the potential of functional instant beverages, he set up Power
Root (M) Sdn Bhd and Power Root Marketing Sdn Bhd, wholly owned subsidiaries of Power
Root Berhad with the other founding directors. Dato Low does not have any family relationship
with any Director or substantial shareholder of the Company, nor does he have any con ict of
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interest with the Group. He does not hold any other directorships in other listed entities and has
not been convicted of any offences within the past ten (10) years. He attended 4 out of 4 Board
meetings held during the nancial year ended 28 February 2013.

Dato Wong Fuei Boon
Executive Director
Dato Wong Fuei Boon was appointed as our Executive Director on 2 February 2007. He is also
one of the founding members of our Group. Prior to his involvement in our business, he owned
and operated several mini-markets in Johor Bahru. Together with the other founding members,
he formed Power Root (M) Sdn Bhd and Power Root Marketing Sdn Bhd, wholly owned
subsidiaries of Power Root Berhad. To further channel his efforts and time on our Group, he
divested his mini-markets business in January 2006. He has 25 years of working experience in
the sales of consumer products, out of which 13 years were in the food and beverage industry.
Dato Wong does not have any family relationship with any Director or substantial shareholder
of the Company, nor does he have any con ict of interest with the Group. He does not hold any
other directorships in other listed entities and has not been convicted of any offences within the
past ten (10) years. He attended 4 out of 4 Board meetings held during the nancial year ended
28 February 2013.6 Power Root Berhad (Company No.: 733268-U)

Dato How Say Swee
Executive Director
Dato How Say Swee was appointed as our Executive Director on 2 February 2007. He is also
one of the founding members of our Group. He operated several retail food outlets before
forming Power Root (M) Sdn Bhd and Power Root Marketing Sdn Bhd, wholly owned
subsidiaries of Power Root Berhad with the other founding members. He has been involved in
the food retailing business for 21 years. Dato How does not have any family relationship with
any Director or substantial shareholder of the Company, nor does he have any con ict of interest
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with the Group. He does not hold any other directorships in other listed entities and has not been
convicted of any offences within the past ten (10) years. He attended 3 out of 4 Board meetings
held during the nancial year ended 28 February 2013.

See Thuan Po
Executive Director
See Thuan Po was appointed as our Executive Director on 27 October 2007. He holds a second
upper honours degree in Accounting and Finance from the London School of Economics and
Political Science and is member of the Institute of Chartered Accountants of England and Wales.
His career path included auditing with Clarke & Co. Chartered Accountants, London for more
than 3 years and investment banking with CIMB Investment Bank Berhad, having placements
with the Corporate Finance and Structure Investment Divisions for approximately 5 years. Mr.
See does not have any family relationship with any Director or substantial shareholder of the
Company, nor does he have any con ict of interest with the Group. He does not hold any other
directorships in other listed entities and has not been convicted of any offences within the past
ten (10) years.He attended 4 out of 4 Board meetings held during the nancial year ended 28
February 2013.

Datuk Sarchu bin Sawal
Non-Independent Non-Executive Director
Datuk Sarchu bin Sawal was appointed as our Non-Independent Non-Executive Director on 18
June 2007. He is also the member of Audit Committee. He graduated with a Bachelor of
Economic (Statistics) from University of Malaya in year 1973 and subsequently obtained a
Master in Business Administration (Finance) from Catholic University of Leuven, Belgium in
year 1977. Datuk Sarchu has been with the Felda Group since 1974. From 1997 to 2010, he
served as the CEO of Koperasi Permodalan Felda Malaysia Berhad and then as the CEO of KPF
Holdings Sdn Bhd till his retirement at the end of December 2012.Datuk Sarchu does not have
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any family relationship with any Director or substantial shareholder of the Company, nor does he
have any con ict of interest with the Group. He also sits in the Board of Felda Commerce-KPF
Ventures Sdn. Bhd. and Gold Coin (M) Group Sdn. Bhd. He has not been convicted of any
offences within the past ten (10) years. He attended 4 out of 4 Board meetings held during the
nancial year ended 28 February 2013.

Ong Kheng Swee
Independent Non-Executive Director
Ong Kheng Swee was appointed as our Independent Non-Executive Director on 15 February
2008. He is also the Chairman of the Audit Committee, a member of the Remuneration
Committee and Nomination Committee. Mr. Ong is a Fellow of the Association of Chartered
Certi ed Accountants of United Kingdom, a member of the Malaysian Institute of Accountants
and a Fellow of the Chartered Tax Institute of Malaysia. He held various senior positions in both
the professional sector (having worked with two major international accounting rms) and in the
commercial sector as nancial controller, group nance director and management consultant in
various industries including petrochemicals, ceramic tiles, minerals and glass. He is currently the
Executive Director/CFO of an automotive components group of companies. He is also an
Independent Non-Executive Director of Yi-Lai Berhad, a company listed on the Main Market of
Bursa Securities Berhad. Mr. Ong does not have any family relationship with any Director or
substantial shareholder of the Company, nor does he have any con ict of interest with the
Group. He has not been convicted of any offences within the past ten (10) years. He attended 4
out of 4 Board meetings during the nancial year ended 28 February 2013.





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Dato Tea Choo Keng
Alternate Director of Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.
Dato Tea Choo Keng was appointed as the Alternate Director to Y.M. Tengku on 2 February
2007. He graduated with a law degree (LL.B Hons) from the University of Hull (United
Kingdom) in 1991. He was called to Bar and admitted as the advocate and solicitor in 1993. He
set up his own legal practice under the name of Messrs Tea & Company in year 1994. He is now
the managing partner of Messrs Tea, Kelvin Kang & Co, a legal rm in Johor Bahru. Dato Tea
does not have any family relationship with any Director or substantial shareholder of the
Company, nor does he have any con ict of interest with the Group. He is an Independent Non-
Executive Director of Lien Hoe Corporation Berhad, a company listed on the Main Market of
Bursa Malaysia Securities Berhad. He has not been convicted of any offences within the past ten
(10) years. He attended 4 out of 4 Board meetings held during the nancial year ended 28
February 2013.











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3.2 BOARDS ROLE AND RESPONSIBILTIES
The Board is assuming the following, amongst other roles and responsibilities, broad categories
of roles and responsibilities:
1) Reviewing and approval of the strategic plans for the group and monitoring thereof;
2) Overseeing the conduct and the performance of the group;
3) Reviewing and managing principal risks affecting the group;
4) Reviewing the competence of the senior management and to ensure sufcient succession
planning of senior Management team is put in place;
5) Reviewing the adequacy and integrity of the group internal control systems and management
information system;
6) Reviewing and approving policies relating to investor relations and shareholder
communication programmers.

3.3 SHAREHOLDERS
Shareholders are important to a business as they are a major source of capital and their money is
what is used to start a business and help it to continue its operations. Aside from contributing
their money, shareholders have a stake in the company and this causes them to contribute with
creative and innovative ideas that help the business grow and increase its market share in the
industry it is involved in.





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LIST OF DIRECTORS SHAREHOLDINGS

No. Name of Directors Shareholdings %
1. Y.M. Tengku Shamsulbhari bin Tengku
Azman Shah, SMK. - -
2 Low Chee Yen 55,695,130 18.57
3 Wong Fuei Boon 55,737,630 18.58
4 How Say Swee 55,938,330 18.65
5 Ong Kheng Swee - -
6 Tea Choo Keng 800,000 0.27
7 Sarchu bin Sawal - -
8 See Thuan Po 155,000 0.05


LIST OF SUBSTANTIAL SHAREHOLDERS

No. Name of Substantial Shareholders Shareholdings %
1 How Say Swee 55,938,330 18.65
2 Wong Fuei Boon 55,737,630 18.58
3 Low Chee Yen 55,695,130 18.57
4 Koperasi Permodalan Felda Malaysia Berhad 48,570,300 16.19
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4.0 EXTERNAL ASSESSMENT
The external forces can be divided into five broad categories which are political or legal
forces, economic forces, social or natural environment forces, technology forces and competitive
force.

4.1 POLITICAL, GOVERNMENT, AND NATURAL ENVIRONMENT FORCES
In this particular topic, it will be discussingthe liaise with auditors, bankers and
government authority and also the assist in audit or tax preparation. In the organization, Y.M.
Tengku was appointed as the Independent Non-Executive Chairman and also the
member of the Audit Committee and the Chairman of the Nomination and Remuneration
Committees. He is also presently the Vice President of the Persatuan Pedagang dan
Pengusaha Melayu Malaysia. The relationship between the organization and government sector
can be a great opportunity to lead the organization growth to achieve sustainability in the
Malaysia market.
Secondly, as Malaysia is popularly known as an Islamic nation, all food sectors operating
within thenation will have to be approved by JAKIM to justified the food is halal or not. JAKIM
is a Malaysian Government institution which has established Malaysias Halal logo and
implemented the Halal Certification System. JAKIM is the governing body that issues Halal
certificate for local and export markets. Moreover, JAKIM is also the monitoring and
enforcement body for halal guidelines. Other than justified halal, JAKIM also ensure the
guaranteed the cleanliness efficiently and effectively of food quality.
Third, in the Malaysias government policy, manufacturers need to acquire the SIRIM
standard if they are involved in the production. Organizations need to ensure that products are
safe to eat and above standard quality. This mark may be used on its own product or in the
combination with the accreditation mark which appears on the management system certificate
issued to the organizations. The mark used shall clearly reflect the management system for which
the organization has been certified and the certificate reference number.
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Organization need to know that food safety hazard incidents can occur at any stage in the
food productivity chain. Therefore it is essential that adequate control be in place. An
organization in food and beverages industry chain must know on how to control food safety
hazards and meet certain level of quality. This shall ensure that food products are always safe for
human consumption.
Hence, by implementing standards and best practices, it enables organizations to produce
high quality and safe products. The management shall develop the understanding of food safety
management system including HACCP, GMP, HALAL and related standards, best practices and
to understand in brief rules and regulations applicable.

4.2 ECONOMIC FORCES
In 2012, Power Root has successfully export its products and penetrated into thirty three
countries, including the United Arab Emirates (UAE), the Kingdom of Saudi Arabia, Kuwait,
Yemen, Egypt, Sudan, Singapore, Brunei, South Korea, China and Thailand. In 2006, Power
Root only exported its products to two countries which are Brunei and the UAE. Organizations
have laboriously invested their time and effort to develop the export markets with the view of
replicating the success experienced in Malaysia.
Results showed that during the financial year of 2012, Power Root recorded revenue of
RM217.0 million, an increase of approximately 17.4% from the revenue of RM184.8 million.
This increase in revenue stemmed from the improved businesses arising from both the domestic
and export markets.
Furthermore, Power Impian International Sdn. Bhdone of subsidiary of Power Root
which involves the direct selling business division, started their operations in Indonesia at the
last quarter of the year 2011. Initiatives were also carried out to increase its distributor network
and products range.
The Power Root borrowings are all repayable in Ringgit Malaysia and secured. They are
known to have never been involve in foreign borrowings and debts securities.Going forward,
Power Root will continue to build on these existing platforms and further expand its reach to new
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markets.


4.3 SOCIAL, CULTURE, DEMOGRAPHIC, AND NATURAL ENVIRONMENT
FORCES
Demographics and psychographic of Power Root are group ages around 18 to 55
yearswhich includes married couples, gender male or female and for lifestyle energy. Their
products target is to provide extra energy for peoples who need sexual energy albeit a legal way.
The segmental information is presented on the basis of geographical segment, which is
based on the geographical location of the customers:
Revenue RM
Malaysia 45,239
Oversea 25,458
Overall 70,697
No other segmental information, such as the segmental assetsand liabilities, are presented
as the industry is principally engaged in one industry, which involves the manufacturing and
distribution of beverage. This is also because they only operates from Malaysia and generally,
the industry does not have any significant seasonal sales cycle, except during the Muslim fasting
month, where sales would be lower.
Power Root also have actively organised and participated in numerous ground events with the
objective of promoting products and increasing reputation.

4.4 TECHNOLOGICAL FORCES
In 2003, Power Root started its very own manufacturing plant in Johor Bahru to cater for
growing demands. An 18-acre phase 1 manufacturing facility is expected to be completed early
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2008, incorporating modern production technology to cater for the strong local market demand,
business development opportunities abroad and new formulations development.
Power root with its entrepreneur spirit, is committed to provide consumers with the
ultimate choice of a high quality product. Concentrated efforts in research and development to
develop new and improve existing products have also accelerated its success in the market. As
such, the company was able to quickly establish a stable business foundation and thus, creates a
very promising future for the company.

4.5 COMPETITIVE FORCES
5 force model of competition which is competitive rivalry, potential entrants, power of
buyers, substitutes product, and power of suppliers.

4.5.1 RIVALRY AMONG COMPETING FIRMS
Among the competing firms of food and beverages industry, Power Root fierce
competitors are NESTLE And F&N. Nestle commitment to providing quality products to
Malaysians dates back almost 100 years ago. Nestle began in Malaysia in 1912 as the Anglo-
Swiss Condensed Milk Company in Penang and later, due to growth and expansion made a move
to Kuala Lumpur in 1939.
On the other hand, F&N is amongst the regions and Malaysias oldest companies and its
brand enjoys the rare distinction of being a market leader and household name in many
categories. From purveyors of carbonated soft drinks, the F&N Group is one of Malaysias
diversified blue chip companies with leadership of the nations beverages and dairy products.
The Group has grown from strength to greater strength with an annual turnover in access of RM4
billion from its core business in the manufacture, sale and marketing of soft drinks, dairies, non-
carbonated beverages as well as property.In Malaysia, F&N operates under the banner of Fraser
& Neave Holdings Bhd (F&NHB), which is the Malaysian arm of Fraser And Neave, Limited.
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In short, most of Power Roots competitorsin the sector have their own advantages in
competing with each other.

4.5.2 POTENTIAL ENTRY OF NEW COMPETITORS
The threat of new competitors entering in the food and beverages industry is considered
high. To start with the industry, an organization needs to own a high capital and quality
assurance as halal certificate, food GMP certified, product of Malaysia certified, chemlab
melamine analyse report and others.

4.5.3 POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCT
In food and beverage industries where competitive rivalry is consider high, there are
many company involve in beverage sector and most of the competitor have a good capability.
For example, milk, milo and so on.

4.5.4 BARGAINING POWER OF SUPPLIERS
The power of suppliers are considered too be high. The plantation is one of the suppliers
in beverage industries where the plantation of herbs and coffee are in excess within Malaysia.

4.5.5 BARGAINING POWER OF CONSUMERS
The power of buyers in the beverage industry is high. Buyers had little bargaining power
because of others competitors in market. The prices for this industry are moderate where not too
high and not too low.
An important part of an external audit is identifying rival firms and determining their
strengths, weaknesses, capabilities, opportunities, threats, objectives and strategies.
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Strengths: Strong foothold in Malaysia, with 18-24% in Coffee and 29-33% in Energy drink
market shares. Also presently a known market leader in the UAE coffee premix market.

Weaknesses: Increasing contribution from exports could cause a seasonality effect on the
groups revenue.

Opportunities: Could set up a production facility in the UAE to support growth and reduce
delivery lead time in the Middle East and African regions.

Threats: Low barriers of entry requires constant A&P budget (15%-20% of revenue)/ new
product launches.














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5.0 INTERNAL ASSESSMENT
The internal forces can be divided into six broad categories which are the management,
marketing, finance, production or operation, value chain analysis, and benchmarking. This forms
the firms strengths that cannot be easily matched/ imitated by competitors.

5.1 MANAGEMNET
Researcher believes that the employees of Power Root are the greatest assets. As such,
the company relentlessly provides an on-going training to enhance its employees' skills and
knowledge as well as providing a conducive environment that allows its employees to achieve
their greater potential. As the company recognizes that human capital is one of the key drivers
towards future growth and financial performance, through its holding company Power Root
berhad (formerly known as natural bio resources berhad ), an Employee Share Option Scheme
was developed with the view of rewarding, motivating and incentivising its employees as well as
allowing them to participate in the equity of the company.

5.2 MARKETING
In the span of the last few years, Power Root has established a strong and aggressive
marketing network in Malaysia. These high quality products combined with aggressive
promotional and marketing campaigns have madePower Root a leading brand in the Malaysia
market. On the export front, Power Root has tie-ups with foreign distributors in the countries
where its products are marketed. With its acute awareness of shifting lifestyle trend, the company
will continuously improve and target the market with different products.
5.3 FINANCE
The main products of Power Root are instant premixed coffee and energy drink. From
what we could observed in the hypermarket, it's fair enough to say that Alicafe series is now the
top local brand in the premixed coffee market. as such, the Power Root series also have a
significant market share in the energy drink segment.
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Historical data of the company:


RM million
FY* Revenue PAT
2007 154.0 34.7
2008 178.5 39.3
2009 138.1 9.8
2010 153.1 10.2
2011 184.8 12.2
2012 217.0 16.7
* FY ended 28-Feb each year.
Its performance had dropped significantly in 2009. However, the company manage to recover
from the economic crisis, and had shown a CAGR of more than 12% during 2009 to 2012.



Segmental Data:


RM million

% %
FYE Local Export Total

Local Export
2008 159.4 19.0 178.5

89 11
2009 118.9 19.2 138.1

86 14
2010 133.7 19.4 153.1

87 13
2011 155.0 29.8 184.8

84 16
2012 170.8 46.2 217.0

79 21

It is also observed that the company's performances in the past few years were partially
boosted by the export market. Its export revenue had become more than doubled within two
years time from 2010 to 2012.

While it is confident that Power Root could maintain its market share (with mild growth) in local
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market, it is also predicted that its growth momentum in the export market will remain strong for
the years to come.

Its dividend record:

2008 5.0 sen.
2009 4.0 sen.
2010 6.0 sen.
2011 4.0 sen.
Based on the current share price of RM0.52, the average DY is about 10%. It is believe that
this dividend rate will be maintained in the coming years and at the same time receiving a high
dividend.

5.4 PRODUCTION OR OPERATION
Organization believes that Power Root deserve a long-term development and operates
with the objective to produce high quality products that exceed customers' expectations, which
will subsequently improving the quality of its customers lifestyle. Power Root plans to
continuously expand its product in the international markets and ultimately, to make its brand
Power Root" a household name globally.
In Chain Analysis (VCA)Power Root develops, manufacture and distribute various food
and beverage products such as coffee, tea and herbal energy drinks fortified with two main
rainforest herbs i.e. Tongkat Ali and Kacip Fatimah. Coffee, Energy drinks, Chocolate and
Tea account for 77%, 12%, 5% and 5% of its total sales respectively (9MFY13) under the brand
names of Ali Caf, Perl Caf, Oligo Caf, Power Root, Perl Ali Tea and the Ah Huat White
Coffee.

TUesday, 19 February 2013
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Power Root - Exports to drive growth

INVESTMENT MERIT
- Stellar share price performance. At yesterdays closing price of RM1.23, Power Root has gained
40.0% (including 3.0 sen dividend) since our Trading Buy recommendation dated 14
th
of Aug 2012. In
fact, the share price has also outperformed the benchmark FBMKLCI by a strong 41.5ppt as the latter lost
1.5% (1,646.32 to 1,620.93) over the same period.

- Results review. During the 6-month time frame, Power Root has twice beaten our earnings projections.
Recently, the group recorded a 116.7% YoY surge in its 9M13 net profit (from RM11.7m in 9M12 to
RM25.4m in 9M13). This was due to: 1) an increase in the local and export sales of the groups FMCG
business and 2) A c.RM3.4m (RM2.1m in 2Q13 and RM1.3m in 3Q13) one-off gain on the disposal of
properties. Excluding the exceptional gain, the net profit still came in ahead of our revised FY13 full-year
earnings projection of RM26.9m.

- Exports to drive growth! Power Roots export sales have been particularly impressive. The groups
export sales have grown from just RM1.7m in FY06 to RM65.2m in 9M13 with the Middle East and
African regions making up most of the exports revenue (about 87% ). As we look toward FY14,
management aims to grow the full-year contribution from this segment to RM130m. We also expect a
significant scope for further growth here and in other countries as well going forward.

- Raising earnings projections. We are raising our FY13-FY14 projections from RM26.9m-RM31.1m to
RM32.9m-RM36.5m. We are also maintaining our targeted 12.0x PER valuation on the stock. Based on a
revised CY13 PER of 12.0x, we value the stock at RM1.44. The new target price implies a still decent
upside of 17.0% and as such, we continue to recommend a Trading Buy call on the stock.












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6.0 STRATEGIC FACTORS ANALYSIS

6.1 SWOT ANALYSIS

STRENGTHS
1. Export to drive growth
2. Financial Position
3. Good Reputation
4. Retail Department
5. Strong R & D
6. Strong market demand locally
7. New formulations development.
8. High quality product
9. Market leader in herba energy
drinks
WEAKNESSES
1. New product launches
2. Low customer retention
3. Brand perception
4. Packaging sizes
OPPORTUNITIES
1. Market Demand
2. Product Development, R&D
3. New Product,New Customer
4. Globalizaton (Import,Export)

THREATS
1. Strong Competitor in Industry
2. Low barrier
3. Economic condition (currency)






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6.2 TOWS MATRIX

Strengths
1. Export to drive growth
2. Financial Position
3. Good Reputation
4. Retail Department
5. Strong R & D
6. Strong market demand
locally
7. New formulations
development.
8. High quality product
9. Market leader in herba
energy drinks
Weakness
1. New product
launches
2. Low customer
retention
3. Brand perception
4. Packaging sizes
Opportunities

1. Market Demand
2. Product Development,
R&D
3. New Product,New
Customer
4. Globalizaton
(Import,Export)
S,O

1. Penetration Strategy-
Increase supply to
Middle East (S3,O1)
W,O

1. Focus Strategy
( Mens and
Womens), W3, O1

Threats

1. Strong Competitor in
Industry
2. Low barrier
3. Economic condition
(currency)
S,T

1. Introduce new product
and services through
Product development
Strategy (Kacip
Fatimah for womens
W,T

1. Diversification
strategy

25

and oligo for
childrens.) (S2, S5, T1)




6.3 RATIO ANALYSIS

Financial year ended 28/29 February
2010 2011 2012
Sales 153,107,212 184,823,929 217,036,013

Profit Before Taxation 12,982,413 14,821,183 19,372,529
Profit After Taxation 10,180,720 12,213,989 16,689,283
Total Assets 225,358,290 219,964,782 232,545,876

Earnings Per Share (Sen) 3.39 4.07 5.44

Shareholderss Equity 191,870,492 180,096,947 184,904,480

Calculation
2010 2011 2012








26



ROA

Net Income
Total Asset

10,180,720
225,358,290

=0.0452

Net Income
Total Asset

12,213,989
219,964,782

=0.5553

Net Income
Total Asset

16,689,283
232,545,876

=0.0718





ROE

Net Income
Total Stockholder Equity

10,180,720
191,870,492

=0.0531

Net Income
Total Stockholder Equity

12,213,989
180,096,947

=0.0679

Net Income
Total Stockholder Equity

16,689,283
184,904,480

=0.0903




ROS


EBIT
Sales

12,982,413
153,107,212

= 0.0848


EBIT
Sales

14,821,183
184,823,929

= 0.0802

EBIT
Sales

19,372,529
217,036,013

= 0.0893


EPS
(Sen)

3.39

4.07

5.44


27


Calculation
2010 2011 2012
Return on Assets (ROA) 0.0452 0.5553 0.0718
Return on Equity (ROE) 0.0531 0.0679 0.0903
Return on Sales (ROS) 0.0848 0.0802 0.0893
Earnings Per Share (EPS) (Sen) 3.39 4.07 5.44







Calculation
2011 2012




Current Ratio

Current Assets
Current Liabilities

132,440,583
35,553,379

=3.7251

Current Assets
Current Liabilities

149,941,472
43,864,383

=3.4183
28





Quick Ratio

Current Assets - Inventory
Current Liabilities

132,440,583-24,180,889
35,553,379

=3.0449

Current Assets - Inventory
Current Liabilities

149,941,472-33,197,405
43,864,383

=2.6615





Debt Ratio

Total Debt
Total Assets

39,867,835
219,964,782

=0.1812

Total Debt
Total Assets

47,641,396
232,545,876

=0.2049



Debt Equity
Ratio

Total Debt
Total Equity


39,867,835
180,096,947

=0.2214


Total Debt
Total Equity


47,641,396
184,904,480

=0.2577


29

Calculation
2011 2012
Current Ratio 3.7251 3.4183
Quick Ratio 3.0449 2.6615
Debt Ratio 0.1812 0.2049
Debt Equity Ratio 0.2214 0.2577






















30

7.0 ALTERNATIVE STRATEGIC AND SELECTED STRATEGY

Power Root can apply diversification strategies to expand the firm operations by adding
products, services, or stages of production to the existing business. The purpose of diversification
is to allow the company to enter lines of business that are different fromcurrent operations.
Power Root is currently depending on herbal drinks compare to HPA Industries Sdn Bhd and
Orang Kampung Holdings (M) Sdn Bhd. HPA Industries Sdn Bhd is one example of a diversify
company in Malaysia. More than 300 types of products issued by the HPA are made up of health
products (herbs), daily use, food & beverage, cosmetic, Umrah & Hajj services, and others.
When a company is operating on more than one product, it still can continue to be
resilientbecause of the profit are gained from various sources and are not dependent to one
product only.

Power Root should apply diversification strategy. The organization can offer variety of
services or products to acquire more customers. It is recommended to Power Root to involve into
multimarket to gain more profit. Instead of only producing health product, Power Root also can
produce cosmetic, supplement or indulge in the hotel industry to seek market growth. Besides, to
make Power Root a competitive organization, they need to earn sales in greater volumes and
capture wider market. Hence, Power Root should consider to apply this strategy with sales of
variety of products and to ensure it can establish a successful firm to seek growth in present and
future.






31


8.0 IMPLEMENTATION OF STRATEGY

As discussed, diversification strategy is one of the strategies that are observed to complement
towards the needs of the organization. As of now, the organization has not implemented the
strategy as it requires a huge amount of capital where preparations towards its implementation
are to be greatly prepared in order for it to succeed. Yet, the strategy said will undeniably
become the solution for the organization if its mission is to expand more.
As known, Power Root has successfully indulged themselves in the energy drinks and also the
caffeine industry and from there, built their empire. The goodwill of Power Root itself is
considered to be one of the leading companies in the energy drinks with almost thirty three
countries being penetrated. This indicates that the company is doing well within its field. Yet, as
the company has already matured in their line of production and sales, it is wiser still to not
remain stagnant. Diversifications of productions can be the only solution to burst themselves
from stagnation hence penetrating new market segments.
Diversification itself can cause harm rather than good if not handled cautiously. As in the case of
Power Root, this is so as it can tarnish their goodwill in producing energy drinks, where, it took
more than a decade to build. For example, consumers would have forgotten the companys core
products because the diversification, hence giving opportunities for new rival to grow. This has
been so with many companies who have failed in implementing the diversification strategy
hence condemning themselves to their doom.
As such, where the risk is high, the repayment would also be paralleled. For Power Root, this
strategy can be use, and only by doing wisely, to garner profits and recover from stagnation with
a booming sale. Wisely, as Power Root is famously known for its energy drinks, it is advisable to
diverse in products still lining with its core to minimize the risk, which means doing a related
diversification. In this, diversification of Power Root could include the food industry and also
medicine industry.
32

By including and expanding in both these industries, Power Root can better manage the
diversification by building and exploring new markets and also simultaneously securing Power
Roots goodwill and also preventing it from being tarnished. This is so because both of the
industries are highly related to their core products.
Moreover, Power Root should also diverse towards the service sector while maintaining in its
line. As its core product promotes sexual energy towards its consumers, sexual energy is also
known to be passed by traditional method, which is by massaging. By indulging themselves in
the service sector, more profits can be made. this is because, service is one of the most profitable
industry in the world and being part of it will boast the companys stature.
Food, medicine and service industry are excellent choices for diversification for Power Root,
yet, research and development should be fortified before going through the changes. This can be
done easily as all of these diversifications are within the core of the company. As the newly
explore market contains many rivalry companies, Power Root should observe the strength,
weakness of the potential competitors and also anticipate the future and present opportunities and
threats that has and could arise. Thereafter, Power Root should benchmark the strength of the
potential competitors, using their weakness, grabbing the opportunities, and overcoming the
threats.
Managing so, the company could further their advancement towards these diverse market with a
high percent of success. In conclusion, it is recommended that the organization should ensure
that there is full usage of the available human resource and other resources as well as ensuring
that the organization fully complies with the government regulations for it to successfully realize
the intended results of the diversification strategies.





33


9.0 STRATEGY APPRAISAL AND CONTROL

Control and appraisal of the diversification strategy is a must before and after the strategy is
implemented. This is to ensure that the strategy used is the right strategy and is beneficial rather
than costing for the company.
As such, in the case of Power Root using related diversification strategy in the future, it must be
appraise to level its need of implementing and control as to the strategy does not goes astray
from the companys objective, mission and vision.
In this, it is practical in using the Porters Three Essential Test which includes:
The attractiveness test
As diversification strategy branches from the core business, it is advisable that before diverging
into other areas of business, related or unrelated, the attractiveness of the field should be studied
and appraised to a standard. If it is to proceed, the new market should be enhancing enough to
pass the standard and expected to bring returns. Hence, the target consumers should be attractive
enough to fill the demand.
As in the case of Power Root, the service industry and also the food and medicine industry
should be appraised as interesting in order for the diversification to succeed.
The cost of entry test
However diverged a company is, it must not exceed its core business and use up all its capital in
diverging. This is because, other businesses are on diversification field from its core, and
entering those businesses must not be by sacrificing another, moreover, the core. In this, a
company must ensure that the cost of entering a business does not capitalize all future cost.
As Power Root will expand much of its capital in the diversification, measurement as to the cost
of entering must be calculated and appraise towards the ability of the company to further its other
businesses, mainly the core.
34

The better-off test
This is mainly an appraisal towards the synergies created from the diversified business and its
core, assuming it is a related diversification. As of interest, the diversification must be of the
same research and development where, when the core is developed, the diversified can also
benefit from it and vice versa.
discussing on the Power Root diversification which are related, it is the perfect test as the
branches that is ideally to diversified are mostly interconnected to the core where, as the core
business, any improvement from the core could benefit the others. Hence, in order for the
strategy to be implemented, the connection and synergies created between the core business and
its diversified must be at a certain level satisfying.













35


10.0 CONCLUSION

Throughout the discussion, it is founded that Power Root has proved that they can manage their
internal and external forces with distinction. Yet, as a grown organization, with a strongly
developed goodwill, Power Root should indulge themselves in other strategies to enlarge their
market share and also venturing into a wider market perspective. The discussion has led to a
proposition as to Power Root future strategies in meeting their mission and vision which is by
relatedly diversifying their product to meet the markets and organizational needs.


.











36


11.0 REFERENCES

Power Root Sdn Bhd: Annual Report 2010. (2010, June 30). Retrieved November 1, 2013, from
Bursa Malaysia: http://www.bursamalaysia.com/
Power Root Sdn Bhd: Annual Report 2011. (2011, June 30). Retrieved November 1, 2013, from
Bursa Malaysia: http://www.bursamalaysia.com/
Power Root Sdn Bhd: Annual Report 2012. (2012, June 29). Retrieved November 1, 2013, from
Bursa Malaysia: http://www.bursamalaysia.com/
Kiasutrader. (2013, February 19). Power Root-Exports to drive growth. Retrieved November 4,
2013, from http://klse.i3investor.com/blogs/journeytowealth88/24952.jsp
Mwangi, S.M. (2010). Implementationof diversification strategy at the Standard Group (K)
Limited University of Nairobi. Retrieved November 11, 2013, from
http://erepository.uonbi.ac.ke/handle/123456789/5653