Saturday May 23, 2009

FOLLOWING the commencement of Hovid Bhd’s new Carotech plant in Lumut, Perak, in January, 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.

In an interview with StarBizWeek, Hovid chief financial officer Andrew Goh attributed this 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.

Goh explains that 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.

Hovid managing director David Ho is very excited over the prospects of its phytonutrients business, largely owing to tocotrienols, which is said to have several health benefits.

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.

“Now that we’re one year into our clinical studies, it is time to look for a partner to help us market this product. We see huge prospects in India,” says Ho.

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.

“Our original business was phytonutrients but along the way, our side business (biodiesel) became more sexy. We’re now going back to our core,” says Ho.