This article first appeared in The Edge Financial Daily on September 19, 2018

KUALA LUMPUR: Controlling shareholders Fajar Astoria Sdn Bhd and David Ho Sue San last week made a second attempt to take Hovid Bhd private at the same price — 38 sen per share.

However, some quarters are of the view that this will not be an easy, if not more difficult, feat given Hovid’s improved earnings performance for the financial year ended June 30, 2018 (FY18), boosted by the additional capacity that had come on stream.

Last Friday, Hovid announced that it had received a letter of request from private equity firm Fajar Astoria and Ho, who is also the group’s chairman and managing director, for the board of directors to consider the proposed voluntary withdrawal of its listing from Bursa Malaysia in view of the group’s public shareholding spread failing to meet the minimum requirement of 75%.

To pave way for the proposed voluntary withdrawal of listing, both Fajar Astoria and Ho intend to make a conditional voluntary takeover offer to buy out all the remaining 173.1 million shares, or a 20.95% stake, they do not own. The latest offer will cost them RM65.77 million.

The news lifted Hovid’s share price yesterday to gain four sen to close at 36 sen, with 2.35 million shares changing hands. Its market capitalisation stood at RM297.39 million.

The Ipoh-based pharmaceutical company achieved a net profit of RM8.9 million, or 1.09 sen per share, in FY18, a contrast to a net loss of RM1.52 million the year before when it suffered from production disruption as its two manufacturing licences were revoked in FY17.

Revenue grew 26.2% to RM241.45 million from RM169.9 million in FY17.

The group’s operating profit soared to RM26.3 million in FY18 compared with RM7.15 million in FY17. Pre-tax profit stood at RM13.95 million compared to a pre-tax loss of RM1.05 million the year before.

However, the latest set of annual earnings figure paints a rosy picture on Hovid’s prospects.

Hovid commented in its results review that its outlook is expected to be “satisfactory” given that the group has expanded its tablet and capsule production facility and is actively securing new overseas markets and registration of new products.

All its plants are operating 24 hours a day since the start of FY18 in order to meet the increased orders.

Hovid’s additional production capacity has come on stream, with the commissioning of Plant A capsule production in December last year and tablet production in March this year.

The new capacity, which was delayed, was another cause of concern previously, on top of the disruption caused by the plant shutdown due to the licence revocations.

By the same token, the new capacity was also one reason that some minority shareholders rejected the earlier general offer in anticipation that the new production facilities would give a strong boost to Hovid’s future earnings growth.

That said, given the low liquidity of the stock and the group’s intention not to address it, it may prompt minorities to part with their shares this time.

Fajar Astoria and Ho collectively hold a 79.05% stake in the pharmaceutical firm after the first takeover bid made in October last year.

Could they eventually wholly own the pharmaceutical company at 38 sen per share? Another impressive set of earnings figures will not help.