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.

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.

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.

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.

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