Pharmaniaga vs Hovid

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Financial Accounting Workshop
Group Assignment : Pharmaceutical Sectors

If the shoe fits….. Buy it in every colour…

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Financial Accounting Workshop
Group Assignment : Pharmaceutical Sectors Pharmaceutical Companies Selected 1) Pharmaniaga Berhad 2) Hovid Berhad

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Financial Accounting Workshop

The presentation will cover : • Reason for choice of companies • Key indicators of comparison • Summary/recommendation

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Financial Accounting Workshop
1) Pharmaniaga Berhad a)Generic Drugs Manufacturer b)Prescription and OTC Drugs c)Mass Market d)Government Hospitals

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Financial Accounting Workshop
2) Hovid Berhad a) “Own Brand” Drugs Manufacturer b) Traditional Medicine & Herbal Supplements c) Niche Markets d) Predominantly traditional and health conscious markets

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Financial Accounting Workshop
Pharmaniaga & Hovid
Sales growth Pharmaniaga 2007 2006 11.92% Hovid 2007 2006 27.5% -

• Increase of Sales growth – Pharmaniaga • existing contracts with the government hospitals, • ventures into other developing countries • consolidation of revenue – acquiring of distribution arm in Indonesia. • Will this continue? Yes, likelihood : • Diversify to non-government contracts - higher pricing • WTO ruling

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Financial Accounting Workshop
Pharmaniaga & Hovid
• Hovid, the sales growth increase : • the expansion to developing markets • The expansion to Macau and Hong Kong • Emphasis on sales of health herbal supplement products • Will this continue for Hovid? • Moving into China, India, Vietnam as well as European countries • Developed successful patented health supplement products targeted to the European market. • Pending 200+ product registration in over 22 countries • Developing the biodiesel product

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Financial Accounting Workshop
Pharmaniaga & Hovid
• Why sales growth of Pharmaniaga is lesser : • Pricing • Sales is pre-contracted with the Government • Anticipate - bigger divergence of sales growth for both companies

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Financial Accounting Workshop
Pharmaniaga & Hovid
Gross Profit Margin

Operating Profit Margin

Pharmaniaga Hovid 2007 2006 2007 2006 16.93% 14.55 52.30% 56.50% % 7.40% 3.52% 17.7% 18.62%

• Gross Profit Margin of Pharmaniaga increased - control its cost efficiency • Good OPM - control its overhead costs

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Financial Accounting Workshop
Pharmaniaga & Hovid
• Hovid’s GPM impressive 52.3% (2007). • Slight downward trend from 56.5% (2006) : • higher raw material cost • CPO higher pricing in 2007 • increase of about 67% over the 12 months period. • Hovid “hedges” its CPO pricing - contract signed with its customers pass on the cost of hike in raw material to its customer. • Hovid’s GPM higher than Pharmaniaga’s due to : • Premium pricing of Hovid’s products • Manufacturing its own products as compared to Pharmaniaga (which outsourced its manufacturing products of 79%. Margin is affected) 10

Financial Accounting Workshop
Pharmaniaga & Hovid
• Hovid’s overhead cost higher than Pharmaniaga’s: • higher R&D cost (noted as an ammortisation of development costs as well as R&D cost in the P&L statement). • huge depreciation (huge investment in Property, Plant and Equipment noted in Investing Cash Flow and Non current Asset in the Balance Sheet) • Negative Investing Cashflow of Hovid (RM78M to RM92M) • Hovid manufactures all its products vs Pharmaniaga which outsourced its manufacturing activities. Therefore a bigger need for Hovid to invest in assets to generate the revenue. • Is the investment strategy paying off? Yes, higher sales growth noted and most probably to continue. 11

Financial Accounting Workshop
Pharmaniaga & Hovid
• GPM of Hovid - likelihood to increase - moving some of its manufacturing arm to India. • GPM of Pharmaniaga - likelihood to remain flattish - no new strategy to lower its costs/change its sales strategy. • Earnings growth potential of Hovid more attractive than Pharmaniaga: • High GPM • to absorb any stiff...
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