HOVID (7213) : Hovid Bhd - Decent start to FY15
Target RM0.41 (Stock Rating: HOLD)
Hovid’s 1QFY6/15 core net profit was broadly in line, making up 27% of our and consensus full-year forecasts. Its sales and profit margin improved marginally due to higher selling prices and a favourable foreign exchange rate. As expected, no dividend was declared. We trim our FY15-17 EPS by 1-2% after updating our financial model with the latest numbers from its annual report. We keep our SOP-based target price at RM0.41, but upgrade it to Hold from Reduce as its share price has corrected by 18% since we downgraded it to Reduce in Aug 14. We prefer Pharmaniaga for its higher upside.
Key results highlights
Hovid’s 1Q15 net profit rose by 26% yoy to RM5.8m, lifted by higher sales. However, EBITDA margin recorded a marginal drop of 0.4% pts from the level a year ago to 19% due to higher research and development expenditure. Excluding these R&D costs, EBITDA margin would have been 0.4% pts higher than last year. We believe the price revision exercise completed in 2HFY14 contributed partly to the higher revenue and profit margin. The weaker RM has also boosted its earnings. Hovid booked a foreign exchange gain of RM0.9m in 1Q15, higher than the RM0.3m gain recognised in 1Q14.
Capacity constraint could limit sales growth
Despite the stronger yoy quarterly performance, its revenue grew by only 2% qoq while EBITDA margin improved by only 0.1% pts. During our Healthcare Corporate Day last month, Hovid revealed that its sales growth is still constrained by its plants’ capacity, which is almost fully utilised. We gathered that its order backlog has risen to RM35m (from RM30m two months ago). Capacity constraint is likely to limit its revenue growth in the near term, as its new tablet and capsule plant will only begin operations around Jul-Aug next year.
We upgrade to Hold
Hovid’s share price has fallen by 18% and underperformed the broader market by 16% since we downgraded it to Reduce in Aug 14. We are upgrading our recommendation to Hold as its valuations are now more reflective of its earnings growth prospects. We would turn more positive on the stock if its sales or profit margin substantially exceed our expectation.
Source: CIMB Daybreak - 26 November 2014
Target RM0.41 (Stock Rating: HOLD)
Hovid’s 1QFY6/15 core net profit was broadly in line, making up 27% of our and consensus full-year forecasts. Its sales and profit margin improved marginally due to higher selling prices and a favourable foreign exchange rate. As expected, no dividend was declared. We trim our FY15-17 EPS by 1-2% after updating our financial model with the latest numbers from its annual report. We keep our SOP-based target price at RM0.41, but upgrade it to Hold from Reduce as its share price has corrected by 18% since we downgraded it to Reduce in Aug 14. We prefer Pharmaniaga for its higher upside.
Key results highlights
Hovid’s 1Q15 net profit rose by 26% yoy to RM5.8m, lifted by higher sales. However, EBITDA margin recorded a marginal drop of 0.4% pts from the level a year ago to 19% due to higher research and development expenditure. Excluding these R&D costs, EBITDA margin would have been 0.4% pts higher than last year. We believe the price revision exercise completed in 2HFY14 contributed partly to the higher revenue and profit margin. The weaker RM has also boosted its earnings. Hovid booked a foreign exchange gain of RM0.9m in 1Q15, higher than the RM0.3m gain recognised in 1Q14.
Capacity constraint could limit sales growth
Despite the stronger yoy quarterly performance, its revenue grew by only 2% qoq while EBITDA margin improved by only 0.1% pts. During our Healthcare Corporate Day last month, Hovid revealed that its sales growth is still constrained by its plants’ capacity, which is almost fully utilised. We gathered that its order backlog has risen to RM35m (from RM30m two months ago). Capacity constraint is likely to limit its revenue growth in the near term, as its new tablet and capsule plant will only begin operations around Jul-Aug next year.
We upgrade to Hold
Hovid’s share price has fallen by 18% and underperformed the broader market by 16% since we downgraded it to Reduce in Aug 14. We are upgrading our recommendation to Hold as its valuations are now more reflective of its earnings growth prospects. We would turn more positive on the stock if its sales or profit margin substantially exceed our expectation.
Source: CIMB Daybreak - 26 November 2014
