Thursday 28 Mar 2024
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This article first appeared in Capital, The Edge Malaysia Weekly, on November 2 - 8, 2015.

 

Hovid-WB_vs_mother-share_Chart_TEM1082_Cap56_theedgemarketsHOVID Bhd manufactures a wide range of generic pharmaceutical products, including health supplements and its key brand, Ho Yan Hor Herbal Tea.

It reported a net profit of RM21.2 million in its financial year ended June 30, 2015 (FY2015), which was an increase of 17.3% from a year ago. The growth was attributed to higher sales and orders, and foreign exchange gains, thanks to the strengthening  US dollar.

In FY2015, Hovid declared a total dividend of 1.35 sen per share, which included a special dividend of 0.35 sen per share.

For investors wishing to ride the company’s bullish prospects for the medium term, it would appear that the company-issued warrant, Hovid-WB, is a cheaper entry. With a strike price of 18 sen and a conversion ratio of one to one, the five-year warrant expires on June 5, 2018.

Year to date, the shares of Hovid (fundamental: 2.10; valuation: 1.70) have risen 40% while Hovid-WB has gained 51%. It is noteworthy that the warrant is trading at a 2.1% discount to the underlying share, which closed at 48.5 sen last Wednesday.

At zero premium, Hovid-WB would theoretically be worth 30.5 sen, thus presenting an upside potential of 3.4% from its closing price of 29.5 sen last Wednesday.

However, a quick check on Bloomberg shows Hovid hit the consensus target price of 46 sen on Oct 6.

Nevertheless, BIMB Securities Research remains confident of Hovid’s future performance and maintains its FY2016 and FY2017 net earnings forecasts at RM25.7 million and RM29.8 million respectively.

“We are positive about the group’s future growth as it is actively procuring new overseas markets, registering new products and expanding its tablet and capsule production through the expansion of its Chemor plant,” the research house says in a Sept 1 report.

It upgraded its recommendation on Hovid to a “buy” with a target price of 49 sen.

In an Aug 30 note, CIMB Research analyst Saw Xiao Jun has lowered Hovid’s FY2016-FY2017 earnings per share by between 7% and 12% to reflect higher costs and a lower profit margin. He, however, believes the weak ringgit helped improve Hovid’s profit margin, given that around 55% of its revenue comes from the export markets.

Considering the limited upside, CIMB Research maintains a “hold” on Hovid with a target price of 42 sen.

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