HOVID BERHAD Value Evaluation

Hovid is involved in one of the Malaysia’s pharmaceutical manufacturer industry. One of the products that has earlier set up Hovid’s image is its herbal tea product line Ho Yan Hor where it is suitable for all kind of consumers. As an early producer of herbal tea pack, the company further diversifies into product lines which include supplements and all kind of agents. Barriers of entry are very high as there is tight government regulatory and millions worth of patents to be rented. Recently, confirmation of generic product’s patent expiry has allowed the firm to produce this new kind of drugs where it results in significantly lower cost. According to the company’s annual report, it has applied for the use of this kind of drugs in several countries where it gains an unfair competitive advantage ahead of other competitors to prepare themselves for the change of traditional drug to generic based products. In the chairman statement itself, we can gain full insights and detailed future directions of the company where it shows that the board and management has full knowledge and control of its plan. This is especially important when we expect future earnings growth for certain company where the management can develop highest value of skills to strive higher. 

Again, survival and outstanding in pharmaceutical industry is almost mission impossible. With Malaysia aiming to become country with high income before 2020, introduction of minimum wages policy has driven the company cost to climb and slash the margin. Also, capital expenditure is very high where the company spends a lot of capital on patented and non-patented drugs. Research and development is vital to stay on the competition’s track where large portion of funds will be utilized. Also, producing patented drugs also means that the competitors are also doing the same. Therefore, strong competition still awaits Hovid in the future.

Cash flow from operating activities faced extreme volatility during the past ten years. Even worse, the recent cash is at a lower level than ten years ago. Although both ratios are up to satisfactory level, it has not been consistent throughout the past ten years which is lack of stability. There is a moderate amount of money averaged RM3.5 million spent on capital expenditure which is minimal. In recent years, the company fulfilled its obligations by gradually paying off all the loans drawn few years back. Although there are no dividends for few consecutive years, I can see that the company is having a positive restructure based on its cash management.  Where intrinsic value is irretrievable, gauge of book value is ([223680-37807]/762080=RM0.244) where the market price is still higher at RM0.335.
Stock: Hovid Code: 7213

CCM DUOPHARMA BIOTECH BERHAD Value Evaluation

Commencing its business as trading pharmaceutical products, CCM stage its game to manufacturing drugs by obtaining license from the government. As there are many patents involved in manufacturing drugs, the industry find less competitors. However, emergence of strong competitors recently in the market has made the competition tougher than ever. As most of the people purchasing decisions of pharmaceutical products depend largely on the effectiveness rather than pricing, it won’t be a problem for CCM to adjust their price. In terms of branding, the company has few well established products such as Thompson cough reliever and Chewes kids' vitamin which gain the loyalty of its customers’ base. Based on its cash flow statements for the past ten years, there are no acquisitions of any subsidiary nor associates where the company generates its growth mostly internally which are different from other pharmaceutical company’s expansion strategy.

As the company ventures itself into an industry that adapts automation process, recent rise of utility rate will hugely affect the company’s margin unless the company adjusts its price. 

Based on the graph, the company has been performing on a gradual upward trend for the past ten years. Although there is a sharp decrease during 2011, it quickly recovered to the level before 2010. Both ratios are up to expectations as the company has been performing efficiently. From what I see, the company is adapting a very conservative strategy where the growth is steady and minimal risks are bared. Overall, the company performs well and possesses the potential to grow steadily in the future.

Stock: CCMDBIO[S] Code: 7148