KUALA LUMPUR: Shares in Hovid Bhd surged yesterday after OSK Research raised its target price for the stock on expectation that the group’s pharmaceutical business is in for a re-rating.
The stock closed 14 sen higher at RM1.93, after hitting an intra-day high of RM1.98.
“We feel that the market has not done justice to the company's pharmaceutical division, which is trading at a bargain forward price-to-earnings multiple of four times, versus the industry average of 12 times,’’ OSK Research said in a update yesterday.
The research house has reiterated its “buy” call on the counter, with a new target price of RM2.20 against RM2.15 previously.
It said Hovid had launched a three-pronged approach to boost margins at its pharmaceutical division.
The move includes outsourcing more lower margins products from large manufacturers in India, and a mid-term plan of possibly setting up its own factory there.
Hovid recently launched three concept stores in three shopping malls, with at least four new ones being planned for next year.
The group has also started marketing its nutritional products via multi-level-marketing, which should boost margins further in the coming years, OSK Research added.
It expects Hovid to launch some 30 new products next year, against an average of 10 products a year previously.
Meanwhile, the company's 56%-owned listed unit Carotech Bhd is expected register robust growth in the next two years on on-going expansion in its biodiesel manufacturing capacity.
Carotech’s biodiesel segment, which registered a pre-tax profit of RM10.6mil in the year ended June 30, is expected to double its pre-tax profit in financial year 2007 and almost triple to RM58.7mil in financial year 2008.
While rising crude palm oil prices could squeeze margins, Carotech’s flexibility in switching to oleochemical products should help mitigate the risk, OSK Research added.
