RHB Research initiates coverage of Hovid, FV 46 sen

KUALA LUMPUR: RHB Research has initiated coverage on Hovid with a Buy call and a fair value of 46 sen as it offered investors exposure to both the pharmaceutical and healthcare industries, with non-cyclical earnings and a global market reach.

It said on Monday Hovid's future revenue drivers include the "patent cliff' phenomenon, in-house drug development, and capacity expansion".

RHB Research ascribed a 17.0 times fully diluted calendar year 2015 earnings per share, at a discount to the 18.9 times average of its peers.

It said Hovid, a generic drug manufacturer based in Ipoh, produces more than 400 kinds of drugs under one roof. Its revenue has been growing at a CAGR of 11.8% in 2009-2013 and export sales contributed 52.5%, or RM90.5mil, to its FY13 topline.

Hovid is currently looking to export to emerging markets and the Middle East, which it has yet to tap into. We estimate that its export contributions may increase to 56.0% in FY16 should this expansion prove successful.

"Hovid is set for a good FY15 ahead, given abundant opportunities in both domestic and global pharmaceutical markets.

"We anticipate that its net profit may grow at a CAGR of 18.5% in FY14-16, or RM20.7mil to RM32.7mil, on the back of growing affluence, health awareness and healthcare expenditure in the markets it operates. It also stands to benefit from the 'patent cliff', a wider export reach and capacity expansion going forward," it said.

Frost & Sullivan sees local healthcare expenditure growing at an annual rate of 6.5% in 2012-2018 to RM68.4bil. Private health expenditure, specifically, is slated to grow at a CAGR of 16.5% in 2010-2020. It is also expected to generate RM13.8bil revenue in 2015 (2011: RM7.5bil).

It added Frost & Sullivan sees the expansion of healthcare services nationwide by both public and private hospitals, translating into increasing demand for generic drugs.