source: [thestar online]
CIMB Research begins coverage of Hovid, target price 43 sen
KUALA LUMPUR: CIMB Equities Research has started coverage of Hovid with an Outperform call and a target price of 43 sen, based on sum-of-parts valuation.
It said on Wednesday the re-rating catalysts could come from increased product registrations in its export markets and strong earnings growth.
Hovid started as a herbal tea maker in 1941 and began producing generic drugs in the 1980s. It prides itself on having the largest export sales among Malaysia-listed pharma companies, deriving half of its revenue (53% in FY13) from exports.
It also has a strong R&D culture, judging from its long list of accolades in manufacturing innovations. These positives are no longer eclipsed by its loss-making subsidiary, Carotech, which it disposed of in 2011.
“Hovid's key markets offer solid growth opportunities. Healthcare spending in Malaysia and some of its key export markets, such as Nigeria, Cambodia and Myanmar, is low by international standards.
“Rising affluence and improved access to healthcare services will fuel demand for drugs. Increased product registrations will also boost Hovid's future earnings by opening up new markets for the group as more drugs will be allowed for sale in countries where the drugs were previously unapproved,” said the research house.
CIMB Research added that Hovid is seeking approval from the US FDA to sell Tocovid SupraBio (a type of Vitamin E) as a drug that could reduce brain damage caused by strokes. If successful, it could open up a blue ocean that is worth billions of dollars in annual sales.
It described Hovid as a defensive growth stock. Hovid's earnings are defensive, as attested by its consistent EBITDA (ex-Carotech) growth during the global financial crisis in 2007-2009.
“Our valuation of 43 sen per share does not include the value of Tocovid SupraBio as a potential drug as its approval could take at least another three to five years. Even without it, we believe that Hovid looks attractive given its strong growth potential,” it said. 
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