As we have previously highlighted in our On Our Portfolio report on Monday, we have no intention to go through the renounceable rights issue that implemented by Hovid to limit our single stock exposure. To recap, the group’s 1-for-2 rights issue of warrants has gone entitlement on 8 May. Investors who decided to go through the exercise will need to fork out RM0.02/share to subscribe for one warrant that set to expire in five years’ time with an exercise price of RM0.18 per ordinary share. We understand that the RIGHT will cease quotation on 20 May 2013 and thus, we have decided to dispose our 30k Hovid-WR at RM0.060, which represent RM1,800 gains in our GROWTH portfolio. 

Hovid’s prospect remains intact in our view judging its continuous effort in exploring new overseas markets and introducing the registering new products. Meanwhile, the operation of its new plant, which is located next to its existing plant and will be commenced in FY13-FY4, provides the group with a higher capacity to cater to new overseas markets. Valuation-wise, the group is still trading at an undemanding FY13 PER of 8.5x, lower than the small cap pharmaceutical sector’s average PER valuation of 9.3x. Our Hovid target price is at RM0.26, based on a targeted FY13 PER of 9.3x, offering 13% upside from here.

Source: Kenanga