Hovid/Carotech ... May 09

Following the commencement of Hovid Bhd’s new Carotech plant in Lumut, Perak, in January 2009, capacity has increased from 90,000 to 120,000 tonnes of biodiesel per annum.

The positive impact of the higher capacity is already showing. For the quarter ended March 31, revenue increased 51% to RM80mil while net profit rose 72% to RM5.4mil. Over the nine-month period, revenue increased 12% to RM168mil but it recorded a net loss of RM7mil compared with a net profit of RM13mil previously.

This was attributed to the foreign exchange (forex) loss from the translation of its US$55mil loan. Over the nine month period, Hovid has recognised a total forex loss amounting to RM22.2mil.

Hovid took up the loan to construct the Carotech plant two years ago and there was also higher interest and depreciation following the completion of the new plant.

Hovid owns 58% in listed Carotech Bhd, which produces biodiesel and phytonutrients.

Ho, together with the Malaysian Palm Oil Board, is currently conducting a 3-year clinical trial on tocotrienols and its benefits on the brain. Through this trial, Ho will gain exclusive rights to commercialise any resultant patents.

Hovid is already producing its own brand of tocotrienol supplements, Tocovid. It has over 2,000 products registered under its brand and is keen to tie up with a multinational company to market tocotrienols globally.

Carotech uses crude palm oil (CPO) as feedstock, which it refines to produce methyl ester (biodiesel) and phytonutrients in the form of tocotrienols and tocopherols (vitamin E compounds) and carotene, a vitamin A compound. Hovid presently produces 80% of the world’s tocotrienol supply.

Each time Carotech extracts phytonutrients from palm oil, it inevitably produces biodiesel. Although a by-product of Carotech, due to interest, it now contributes some 70% to Carotech revenue.

In the case of Hovid, biodiesel contributes 40% to revenue.

CPO prices are negatively correlated to the production of biodiesel. Hence, high CPO prices will see the production of biodiesel being less viable.

This has been a huge reason for the loss of investor interest in Hovid and Carotech as CPO prices took off beginning 2006 to reach a peak of RM4,330 per tonne in March 2008. It presently stands at about RM2,789 per tonne.