INVESTMENT MERIT
A new chapter.
Hovid, a leading generic drugs manufacturer, has moved into a new chapter after
completing the distribution of its shareholding
interest in Carotech to its (Hovid) shareholders in June 2012. Moving forward,
Hovid will only have its own pharmaceutical business left, where the NP has
grown by a 6-year CAGR of 9.5% to RM17.8m in FY12. The group is currently
trading at 9.3x FY13 PER. Assuming the market willing to price Hovid at a 10x
PER, due to its penny stock status, the stock can be valued up to RM0.26. However,
given the less impressive upside from here, +8.3%, we would only advise
investors to Buy on Weakness at below RM0.21.
Aiming to record a
double-digit growth. Hovid is
aiming to record a 15%-20% net
profit growth in FY13, to be underpinned by its higher production capacity and
economical of scale at its India’s plant.
Pharmaceutical
business – a sustainable recurring income business. Hovid has a rich
product portfolio of over 300 pharmaceutical products. With the launch of about
10 new products per annum, Hovid’s future prospect appears convincing in our
view. Anti-diabatic drugs are its top-selling
products and account for about 70% of the group’s total turnover,
according to management.
Continue to grow its
international network. The group has an international network covering over
50 countries and it aims to add three new countries into its wide network per
annum. At present, about 40% of the group’s FY12 total turnover came from local
sales with the balance from oversea markets (i.e. Nigeria, S’pore, Hong Kong,
etc.).
Proposed renounceable
rights issue. Hovid has recently proposed
to undertake a renounceable rights issue of up to 571.5m warrants at an issue
price of RM0.02 each on the basis of one warrant for every two existing Hovid
ordinary shares (1 for 2). The proposed corporate exercise will not only provide an option to entitled
shareholders to further increase their participation but will also enable the
group to raise up to RM11.4m to finance its working capital requirement as well
as to furher strengthen the equity base of the company. We understand that this
proposal is only expected to be implemented after the expiry of its existing
warrants on 28 January 2013.
SWOT ANALYSIS
Strength: Rich
products portfolio and extensive int’l network.
Weaknesses: Potential margin squeeze due to
competition.
Opportunities: Further growing its already rich int’l distribution newtwork.
Introduction of more generic drugs.
Threats: Delay in
patent drugs’ expiry.
TECHNICALS
Resistance:
RM0.245 (R1), RM0.270 (R2)
Support: RM0.215
(S1), RM0.205 (S2)
Comments: Hovid’s
technical picture has improved
significantly with the breakout of the 21.5 sen resistance level and the golden
crossovers by the SMAs. Traders should look to buy on any weakeness towards the
aforementioned resistance-turned-support.
BUSINESS OVERVIEW
Hovid Berhad (Bursa Code: 7213, HOVID) is engaged in the
manufacture of pharmaceutical and herbal products. The company is a
pharmaceutical manufacturer of medicinal preparations and health supplements
with more than 300 products distributed over 50 countries globally.
Hovid's products include antibiotics, antidiabetics,
antihypertensives, antimalarial and anti-inflammatory analgesics ranging from
skin care and hair care to health beverages. Its products are manufactured in
GMP compliant plants. The group’s most popular products include TOCOVID
SupraBio and Ho Yan Hor Herbal Tea.
BUSINESS SEGMENTS
HOVID’s core business is its Pharmaceutical segment, which
is engaged in the manufacturing and sale of pharmaceutical products. In FY12,
HOVID’s Pharmaceutical division recorded a
revenue of RM162.6m (+12% YoY) due mainly to additional production
capacity and increased output as a result of higher demand from customers.
Source: Kenanga
No comments:
Post a Comment