Hovid
is involved in one of the Malaysia's pharmaceutical manufacturer
industry. One of the products that has earlier set up Hovid's image is
its herbal tea product line Ho Yan Hor where it is suitable for all kind
of consumers. As an early producer of herbal tea pack, the company
further diversifies into product lines which include supplements and all
kind of agents. Barriers of entry are very high as there is tight
government regulatory and millions worth of patents to be rented.
Recently, confirmation of generic product's patent expiry has allowed
the firm to produce this new kind of drugs where it results in
significantly lower cost. According to the company's annual report, it
has applied for the use of this kind of drugs in several countries where
it gains an unfair competitive advantage ahead of other competitors to
prepare themselves for the change of traditional drug to generic based
products. In the chairman statement itself, we can gain full insights
and detailed future directions of the company where it shows that the
board and management has full knowledge and control of its plan. This is
especially important when we expect future earnings growth for certain
company where the management can develop highest value of skills to
strive higher.
Again,
survival and outstanding in pharmaceutical industry is almost mission
impossible. With Malaysia aiming to become country with high income
before 2020, introduction of minimum wages policy has driven the company
cost to climb and slash the margin. Also, capital expenditure is very
high where the company spends a lot of capital on patented and
non-patented drugs. Research and development is vital to stay on the
competition's track where large portion of funds will be utilized. Also,
producing patented drugs also means that the competitors are also doing
the same. Therefore, strong competition still awaits Hovid in the
future.
Cash
flow from operating activities faced extreme volatility during the past
ten years. Even worse, the recent cash is at a lower level than ten
years ago. Although both ratios are up to satisfactory level, it has not
been consistent throughout the past ten years which is lack of
stability. There is a moderate amount of money averaged RM3.5 million
spent on capital expenditure which is minimal. In recent years, the
company fulfilled its obligations by gradually paying off all the loans
drawn few years back. Although there are no dividends for few
consecutive years, I can see that the company is having a positive
restructure based on its cash management. Where intrinsic value is
irretrievable, gauge of book value is ([223680-37807]/762080=RM0.244)
where the market price is still higher at RM0.335.
Stock: Hovid Code: 7213
Stock: Hovid Code: 7213
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