Hovid has announced on Bursa Malaysia yesterday that its 58%-owned subsidiary Carotech has defaulted on its principal and interest servicing in respect of certain banking facilities from financial institutions. According to Hovid, it does not have any obligation with regard to the defaulted loans by Carotech. Carotech is currently working directly with the financial institutions with the assistance of the Corporate Debt Restructuring Committee (CDRC) to construct and implement a Debt Restructuring Plan.

Downgrade to SELL. With fears of risk having materialized, we have cut our PER valuation from 8x to 6x PER on FY11 EPS and arrive at a lower TP of RM0.21 from RM0.28 previously. Despite the lack of downside on the stock, due to the negative sentiment arising from the default and amid uncertainties on the future, we have downgraded our recommendation from TRADING BUY to SELL.