Malaysian consumer stocks seem to be facing headwinds in tandem with a prevailing bearish sentiment affecting the consumer segment. Hovid Berhad, a pharmaceutical company based in Malaysia has seen its share price falling to 1-year low of MYR0.345 per share.
Latest quarterly result of Hovid
Latest Quarterly Results
We posted our first article about Malaysian-listed pharmaceutical / consumer product manufacturer company, Hovid Berhad (“Hovid”) in see link . The company has recently reported its financial period ended 30 June 2016 on 30 August 2016.
Latest FY16 unaudited financial result seem to suggest that the growth rate for the Company appears to be moderating. Further, recent volatility in exchange rate has led to higher variability in earnings.
Nevertheless, the Company expects its business outlook to be satisfactory:
Defining Relationship Between Hovid and Hovid-W
The share prices of both the Company’s ordinary shares and warrants have declined since reaching their peak in 2015:
Based on a simple regression analysis between Hovid and Hovid Warrant, the current price of Hovid Warrant appears to be relatively lower than the predicted value (predicted RM0.227 vs actual RM0.21 per warrant) as per the regression analysis. At Hovid’s current price of RM0.21 per share, the 95%-confidence interval for Hovid Warrant ranges from RM0.195 to RM0.260 per warrant.
Forecast price of Hovid Warrant = -0.0767470 + 0.779978 (share price of Hovid)
Determining Forecast Price Range
Based on a simple desktop analysis, assuming price-to-earning ratio of 17.0x (based on Hovid’s average PER since 1 Jan 2015) and forecast FY17 EPS of between RM0.023 – RM0.024 per share, it is anticipated that Hovid may possibly trade between a range of RM0.39 – RM0.41 per share. Using the regression relationship established above, this will translate into potential forecast price range for Hovid Warrant of between RM0.233 and RM0.245 per warrant.
It is important to emphasise that the above desktop analysis is strictly for illustration and does not substitute the need for a detailed analysis.
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Company Background – Hovid Berhad
Their globalization corporation stemmed from a humble herbal stall. Along with its rich heritage, Hovid (formerly known as Ho Yan Hor) carries with her years of invaluable experience in the pharmaceutical industry. Dating back to 1945 when the business was first established, Hovid’s only commodity was Ho Yan Hor herbal Tea, concoted by its founder, Dr. Ho Kai Cheong. The popularity of the tea soon made it a household name in Malaysia.
Current Price Trend – Hovid Berhad
Since Dec 15, its share price has trended lower, currently at the edge of the lower bound of the Bollinger Band. Consequently, this may lead to potential rebound in the share price. In respect of analysts’ price target of Hovid, this ranges from RM0.43 till RM0.555 (based on year 2015):
It appears that there is room for potential price appreciation for Hovid.
Trading Opportunities Using Hovid Warrant (“Hovid-WB”)
One way of capitalising on the potential rebound of Hovid is to trade via its warrants Hovid-WB, which are currently trading at zero warrant premium:
|Price (MYR)||0.1800||Implied Gearing||1.766||Conversion Ratio||1 Share : 1 Warrant(s)|
|Premium (%)||0||Simple Gearing||1.766||Expiry Date
|05 Jun 2018 (759 days)|
|Outstanding Warrants||330,398,629||Underlyings (Price)||HOVID (0.415)|
|Exchange Code||7213WB.MY||ISIN Code||MYL7213WBS61|
Based on a simple desktop analysis, the following relationship is established between the share prices of Hovid-WB and Hovid:
Based on the above statistical relationship:
Share price (Hovid-CB) = -0.09811 + 0.8244 x (Share Price of Hovid)
Currently, it appears that Hovid-CB’s share price of RM0.235 is relatively lower than its forecast value of RM0.244, with a 95%-confidence interval of RM.213 – RM0.275.
If Hovid’s share price increases from its current price of RM0.415 to:
- RM0.43: Hovid-CB -> RM0.26
- RM0.45: Hovid-CB -> RM0.27
- RM0.48: Hovid-CB -> RM0.30
- RM0.51: Hovid-CB -> RM0.32
- RM0.55: Hovid-CB -> RM0.36
The good thing is that Hovid-CB expires in Jun 2018 (approx. 2 years from now). Ample time to ride through the market volatility. However, we need to be mindful of the impacts resulting from the implementation of TPPA on the pharmaceutical sector (http://www.theborneopost.com/2015/10/15/tpp-to-impact-pharmaceutical-sector/).
DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.