HOVID (7213) - Hovid Bhd - Stronger dose of earnings in 2H
Target RM0.45 (Stock Rating: HOLD)
Hovid’s 1HFY6/15 net profit made up 49% of our full-year forecast and 48% of consensus’. This is deemed as above expectations, as sales in the second half of its financial year are seasonally stronger. Moreover, the company should also benefit from the weaker ringgit given that half of its revenue is derived from the export market. Hovid declared a dividend of 0.5 sen per share, which is in line with our forecast. We raise our FY15-17 EPS forecasts by 4-7% to account for the better performance. This lifts our SOP-based target price to RM0.45. Nonetheless, we downgrade Hovid to Hold from Add as its share price upside is limited. We prefer Pharmaniaga for higher upside.
Key results highlights
Hovid’s 2QFY15 net profit rose 26% yoy to RM4.6m. The better performance was achieved on the back of higher revenue and improved profit margin. During the quarter, revenue grew 8% yoy, which the company attributed to improved productivity and increase in orders. The weaker ringgit also contributed to the higher revenue. RM/US$ averaged at 3.37 in 2Q15, 4.9% weaker than the 3.21 in 2Q14. EBITDA margin also improved by 2.2% pts to 16.6% in 2QFY15. Recall that Hovid is facing capacity constraint at its plants. As such, we believe the order backlog allowed the company to prioritise products with higher profit margin.
Expect stronger 2H
The ringgit has weakened by another 7% against the US$ from 2QFY15 level. A weaker ringgit will further boost Hovid’s revenue as half of its sales are derived from exports, of which most are priced in US$. This, coupled with seasonally stronger sales in 2HFY15, should lead to stronger earnings in 2HFY15. We raise our FY15-17 EPS forecasts by 4-7% mainly to account for higher sales and weaker ringgit.
Downgrade to Hold
Despite the outperformance in earnings, we downgrade Hovid to Hold from Add as the stock has performed well year to date. Its share price has risen 30% since 1 Jan. We believe its current valuations already reflect its better earnings prospects amid a weaker ringgit environment. We would turn more positive on the stock if its sales or profit margin substantially exceeds our expectations.
Source: CIMB Daybreak - 26 February 2015,
Target RM0.45 (Stock Rating: HOLD)
Hovid’s 1HFY6/15 net profit made up 49% of our full-year forecast and 48% of consensus’. This is deemed as above expectations, as sales in the second half of its financial year are seasonally stronger. Moreover, the company should also benefit from the weaker ringgit given that half of its revenue is derived from the export market. Hovid declared a dividend of 0.5 sen per share, which is in line with our forecast. We raise our FY15-17 EPS forecasts by 4-7% to account for the better performance. This lifts our SOP-based target price to RM0.45. Nonetheless, we downgrade Hovid to Hold from Add as its share price upside is limited. We prefer Pharmaniaga for higher upside.
Key results highlights
Hovid’s 2QFY15 net profit rose 26% yoy to RM4.6m. The better performance was achieved on the back of higher revenue and improved profit margin. During the quarter, revenue grew 8% yoy, which the company attributed to improved productivity and increase in orders. The weaker ringgit also contributed to the higher revenue. RM/US$ averaged at 3.37 in 2Q15, 4.9% weaker than the 3.21 in 2Q14. EBITDA margin also improved by 2.2% pts to 16.6% in 2QFY15. Recall that Hovid is facing capacity constraint at its plants. As such, we believe the order backlog allowed the company to prioritise products with higher profit margin.
Expect stronger 2H
The ringgit has weakened by another 7% against the US$ from 2QFY15 level. A weaker ringgit will further boost Hovid’s revenue as half of its sales are derived from exports, of which most are priced in US$. This, coupled with seasonally stronger sales in 2HFY15, should lead to stronger earnings in 2HFY15. We raise our FY15-17 EPS forecasts by 4-7% mainly to account for higher sales and weaker ringgit.
Downgrade to Hold
Despite the outperformance in earnings, we downgrade Hovid to Hold from Add as the stock has performed well year to date. Its share price has risen 30% since 1 Jan. We believe its current valuations already reflect its better earnings prospects amid a weaker ringgit environment. We would turn more positive on the stock if its sales or profit margin substantially exceeds our expectations.
Source: CIMB Daybreak - 26 February 2015,
