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Tuesday, April 15, 2014

New long term entry - HoVid

Hovid is previously a company that sells herbal tea under Ho Yan Hor brand, some 70 years ago. Under the leadership of the founder's son David Ho, Hovid went into manufacturing of pharmaceutical drugs, supplements and herbal products. It has over 400 products and is a leading exporter of pharmaceutical products in Malaysia with overseas revenue accounting for more than half of it's total sales.

Hovid was previously a problematic company and was classified as a PN17 company from October 2010 to January 2012 due to the financial problems caused by it's subsidiary Carotech. After dumping Carotech, Hovid can now focus on its profitable pharmaceutical business. 

The pulling factors are:
  1. The "patent cliff". This happens when patent of the blockbuster drugs from big drugs company expires and the generic drug manufacturers can now produce their own cheaper version of the drugs. In 2014 alone there are some 6 billion USD worth of drugs expiring. So there should be plenty of generic drugs in the pipeline for Hovid. As government across the globe are trying to save money, there will be ever more demands for generic drugs and hopefully some of it will come from Hovid.
  2. Hovid targets to launch about 10 to 12 products annually and will focus on high demand lifestyle drugs that are essential for extended remedies such as diabetes, heart diseases and cholesterol. More importantly, lifestyle drugs provide recurring revenue. 
  3. Continuous improvement of manufacturing process over the last 5 years begins to bear fruits as in lower cost and higher outputs. Manufacturing time cycle time has been reduced from 20 days to 9 days and the duration taken to produce a million units has reduced from 400 hours to 290 hours. As a result, the margins have improved.
  4. Expansion plans underway. The company is now in midst of constructing a tablet and capsule plant in Perak to increase its production by 30% in Phase 2 and the plant will start contributing in FY2016. A new research and development centre in Penang to undertake in-house trial for new generic drugs and a centralised warehouse are also planned. 80% of the capital expenditure will be funded throught bank borrowings and internally generated funds. 
  5. Export market. Any local company that can compete internationally is surely a well-managed company and should be supported.
  6. FDA approval for Tocovid. Hovid is in the midst of pursuing approval from US Food and Drug Administration to sell its Tocovid as a drug that could comfort stroke patients. Currently, Tocovid is classified as a dietary supplement and unlike drugs, dietary supplement are legally deemed unable to assert its effectiveness in preventing or curing ailments. The potential market size for Tocovid is enormous as stroke accounts about 49% of the US population. However, this approval might take 3-5 years. So it should only be considered a bonus, when it is realized.
The financials are also show that the company is growing:

So I am in 20000 units @ RM0.34 with a long term investing horizon of 1-3 years. Ah bu Huat Fund looks like this now:


Financial assets at 18.04.2014

Name
Purchase Date
Purchase Price
Current Price
Unit
Current Value
P/L ex Dividend (%)
Dividend
P/L inc Dividend (%)
Cash
Hle-Broking


17454,39





Stocks
OCK
27.12.13
0,78
1,28
5000
6400
63,3

63,3
Inari
24.02.14
2,30
2,65
10000
26500
15,4

15,4
Sunreit
04.10.13
1,40
1,34
5000
6700
-4,1
188,8
-1,4
Cypark
22.10.13
2,17
2,92
3000
8760
34,5

34,5
Hovid
14.04.14
0,34
0,34
20000
6800
-0,5

-0,5
Total Stock
55160,00
76,0
%
Total cash
17454,39
24,0
%
Total
72614,39
Current profit
8127,17
Total profit
22614,39
45,2
%
Total dividend
473,94

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