Analysts dropping coverage on HOVID

The tough operating condition that has hit Carotech Bhd has left a bruise on its parent Hovid Bhd, which is no longer the favourite among analysts it once was.

In fact, OSK Investment Bank, in a recent report titled “Still Far Away”, had discontinued its coverage on Hovid from Sept 1, citing the group’s sluggish performance and ongoing concerns over its ability to service debts, particularly at Carotech’s level.

OSK had ended its coverage on the stock with a “not rated” recommendation. Earlier, it had recommended a “sell” on Hovid with a target price of 21 sen. Hovid closed at 18 sen last Friday, giving it a market capitalisation of RM137.2 million.

While operating conditions had been tough for some time, what broke the camel’s back was Carotech’s announcement to Bursa in early July that it had defaulted on its principal and interest servicing in respect of certain banking facilities from financial institutions.

Although Hovid does not have any obligation to the defaulted loans from Carotech, OSK said it was still concerned that the default may trigger a cross-default with Hovid’s other lenders.

The investment bank was also concerned with the continuing sluggish performance of the group. It said Hovid’s net profit of RM17.4 million for FY10 ended June 30 included an unrealised forex translation gain of RM12.3 million at Carotech due to a stronger ringgit. Excluding the forex gain, it said Hovid’s core net profit of RM5.12 million was “significantly” below its forecast, accounting for less than 22% of its FY10 earnings projection for the company.


This article appeared in The Edge Financial Daily, September 27, 2010.