sales
KUALA LUMPUR: CIMB Equities
Research forecasts Hovid’s near-term earnings growth could be lower than
expected due to capacity shortage at its plants.
It said on Tuesday the new manufacturing plant should be completed by mid-2015 but the new capacity may take a further six to nine months to fully come on-stream.
“In view of this, we scale back our FY6/14-16 EPS by 2%-4% to reflect weaker sales volume growth and trim our sum-of-parts based target price to 42 sen.
“We downgrade the stock to Reduce from Add following a strong run-up in its price last month. Potential de-rating catalysts are weaker revenue and earnings growth. We prefer Pharmaniaga for exposure to Malaysia’s healthcare sector,” it said.
CIMB Research recently met with Hovid’s chief financial officer CFO Andrew Goh.
The key takeaways from the meeting are 1) its plants are running at almost full capacity, which has resulted in a record order backlog of RM30mil (equivalent to two months of sales), 2) construction of its new tablet and capsule facility in Chemor has and should be completed by mid-2015, and 3) the company remains confident of achieving higher revenue in FY15 but cautions that sales volume growth may be tepid as a result of capacity constraints.
The research house said in the past, Hovid managed to add capacity through upgrades of equipment and improvement of workflows. However, it is now finding it increasingly difficult to wring more capacity out of its existing plants.
The new manufacturing plant will lift its tablet and capsule capacity by 30% but will fully come onstream only after 2015. Tablet and capsule products account for roughly 60% of Hovid’s revenue. In the meantime, capacity constraints at its existing plants could hamper its near-term revenue growth.
CIMB Research said Hovid’s share price has soared nearly 35% since it initiated coverage on it in
December 2013.
“While we continue to like its earnings growth prospects, we believe this has been priced in following the 27% surge in its share price last month. As such, we downgrade the stock to Reduce as it trades at 8% above our target price.
“We would turn more positive if the group makes significant progress in the clinical trial for Tocovid SupraBio, currently a supplement for which Hovid owns the formulation patent, to explore its use as a drug for liver and stroke patients. The FDA approval for its usage as a drug is expected to take three to five years,” it said.
It said on Tuesday the new manufacturing plant should be completed by mid-2015 but the new capacity may take a further six to nine months to fully come on-stream.
“In view of this, we scale back our FY6/14-16 EPS by 2%-4% to reflect weaker sales volume growth and trim our sum-of-parts based target price to 42 sen.
“We downgrade the stock to Reduce from Add following a strong run-up in its price last month. Potential de-rating catalysts are weaker revenue and earnings growth. We prefer Pharmaniaga for exposure to Malaysia’s healthcare sector,” it said.
The key takeaways from the meeting are 1) its plants are running at almost full capacity, which has resulted in a record order backlog of RM30mil (equivalent to two months of sales), 2) construction of its new tablet and capsule facility in Chemor has and should be completed by mid-2015, and 3) the company remains confident of achieving higher revenue in FY15 but cautions that sales volume growth may be tepid as a result of capacity constraints.
The research house said in the past, Hovid managed to add capacity through upgrades of equipment and improvement of workflows. However, it is now finding it increasingly difficult to wring more capacity out of its existing plants.
The new manufacturing plant will lift its tablet and capsule capacity by 30% but will fully come onstream only after 2015. Tablet and capsule products account for roughly 60% of Hovid’s revenue. In the meantime, capacity constraints at its existing plants could hamper its near-term revenue growth.
CIMB Research said Hovid’s share price has soared nearly 35% since it initiated coverage on it in
December 2013.
“While we continue to like its earnings growth prospects, we believe this has been priced in following the 27% surge in its share price last month. As such, we downgrade the stock to Reduce as it trades at 8% above our target price.
“We would turn more positive if the group makes significant progress in the clinical trial for Tocovid SupraBio, currently a supplement for which Hovid owns the formulation patent, to explore its use as a drug for liver and stroke patients. The FDA approval for its usage as a drug is expected to take three to five years,” it said.
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