Hovid Bhd managing director David Ho talks about the business plans and why the company and its subsidiary Carotech Bhd have been attracting investor interest.
STARBIZ: Hovid recently graduated to the main board. What does this mean for the company and how does it impact performance, perception, funding, etc?
David Ho: There will not be any major impact on operations or performance irrespective of which board we are on. Presumably the investing public and community will have a better perception of Hovid, seeing that the company is now on the main board.
Bankers hopefully will also view Hovid more positively in terms of future funding. The main benefit from the transfer is to allow more financial institutions to invest in Hovid, thereby creating greater liquidity for its shares.
Many financial institutions such as pension funds and insurance companies do not allow or have little allocation for investment in second board and Mesdaq companies.
StarBiz: Hovid has over 50% stake in Carotech. Besides earnings contribution to Hovid, what other positive impact does Carotech have on the company?
Ho: Carotech was born out of research and development efforts of Hovid. In fact, it is Hovid that contributes more to Carotech, especially from sale of phytonutrients. Undeniably Carotech’s effort in selling phytonutrients has made it easier for Hovid; otherwise, it would be much more difficult to sell phytonutrients.
The two companies (Hovid/Carotech) work very closely, as the phytonutrient business requires knowledge and expertise of both companies.
StarBiz: Where are the future earnings of Hovid coming from? Will they be from greater exports and what is the current percentage of earnings from overseas markets?
Ho: Malaysia's population of 25 million is relatively small. Realising this, Hovid started building its export markets in the late 80s, and now exports to over 40 countries with an exposure to 800 million people. Our export markets now contribute 53% to Hovid's revenue.
At the group level (including Carotech), 70% of revenue is derived from the export market. Our exports are mainly to developing countries, and as their population grows, the demand for healthcare products and services should rise as well, which hopefully would lead to greater consumption of our products as their economies improve.
StarBiz: What are the targets over the next 12 months? Will overseas contribution improve significantly?
Ho: On average, it takes about five years to develop an export market to a meaningful level in terms of earnings contribution. Therefore, we are continuously searching for new markets while widening our network in existing markets that we have penetrated. We are confident the export market will continue to be a significant contributor to Hovid's earnings growth and we expect to maintain double-digit earnings growth per annum.
StarBiz: Analysts are generally bullish about Hovid. What do you think is the reason?
Ho: Most analysts like the pharmaceutical industry because the companies' earnings are generally in line with population increase.
The pharmaceutical business is also quite recession-proof because the older we get, the more likely we need medication or drugs, and these expenses cannot be avoided.
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