And How About Hovid?

I realised that I did not blog on Hovid since I had blogged on Carotech on the 2nd July 2010: Oh Carotech: Using Debts To Grow A Business Is Not Sure Win!

On Saturday, 3rd July 2010, Star Business had the following article on Hovid: Hovid: Default no impact on unit

• Saturday July 3, 2010
  Hovid: Default no impact on unit
  
  PETALING JAYA: Hovid Bhd has clarified that the the default in some loans by 58.2% owned subsidiary Carotech Bhd has no impact on the company.
  
  “The default in loans by Carotech happened solely at Carotech and it has no legal implication on Hovid as Hovid has not provided any guarantee for the loans of Carotech. Additionally, Hovid does not have any financial obligation to Carotech,’’ it said in statement to Bursa Malaysia yesterday.
  
  Hovid and its other subsidiaries, excluding the Carotech Group, are not in default of any of their respective loan obligations.
  
  Although, Carotech is major subsidiary of the Hovid group of companies, the businesses of Hovid and Carotech are different.
  
  Shares in Hovid plunged 3.5 sen, or 17% to 17 sen yesterday, while Carotech tumbled 4.5 sen, or 33% to a record low of 9 sen.

Yes, I realised that I should have blogged on Hovid too because I do have some concerns in regards to those statements in bold rather incredible.

Here's the link to Hovid's last reported earnings notes: Hovid Bhd Q3 2010.pdf

Here's the simple logical reasoning why I would be concerned. If Carotech had defaulted on its loans, won't Carotech's business operations (ie sales) be affected? Now if Carotech sales could be impacted, then does Carotech's sales and earnings contribute to Hovid's bottom line?

Well according to the above pdf file link, Hovid said it's profit after tax was 12.82 million. Here's the segmental breakdown as stated on page 6 of the pdf file.

As seen in the table, Hovid reported a sales revenue of 107.079 million for the quarter. Carotech contributes 75.595 million sales to Hovid's bottom line.

And look at the Profit After Tax. Hovid said it had net earnings of 12.822 million. Out of that 12.822 million, Carotech contributes a massive 9.751 million!!!!

So if Carotech's business is impacted by its own default in payment to its bankers, then surely Carotech business would be hit. And if so, surely Hovid's earnings would be hit also, yes?

So would Carotech default of loans have an impact on Hovid?

And Hovid's balance sheet does show weakness too! It has some 173.172 370.127 million in total borrowings. Cash on hand is only 12.556 million. And like Carotech, Hovid is carrying lots of inventory too! It inventory balance is a huge 183.483 million.

How?