• Global values HPIC’s stock at JD1.33 and recommends a HOLD on the stock
Global Investment House – Kuwait – Hayat Pharmaceutical Industries Company (HPIC) – Results Update Report- HPIC reported a total revenue of JD3.80mn in 2007, up by 17.24% over the JD3.24mn recorded in the previous year. Export sales constituted around 49% of the company’s total revenue in 2007. Net profit for the year 2007 was JD0.69mn, up by 5.71% from the JD0.65mn reported in 2006. The net profit margin declined to 18.18% in 2007 down from 20.17% in 2006.
Based on its current market price of JD1.42, HPIC stock is trading at 19.5x of its 2007 earnings and 1.2x its 2007 book value. On a one year forward basis, the stock is trading at 16.8x of 2008 forecasted earnings and 1.2x of 2008 forecasted book value. Based on a WACC of 11.45%, the DCF value of HPIC is JD1.23.
On the basis of the weighted average P/E for the industry and the HPIC’s projected 2008 earnings, the company’s stock value is JD1.69. Assigning an 80% weight to the DCF value, and a 20% to the relative value, the weighted average share value of HPIC came out to be JD1.33, which is 6.63% less than the current trading price of JD1.42. Hence we recommend a “HOLD” on the company’s stock.
Financial Performance
The company’s total revenue was JD3.80mn in 2007, up by 17.24% over the JD3.24mn recorded in the previous year. Cost of goods sold for the year 2007 were JD1.10mn, up by 11.86% from the JD0.98mn reported in the previous year. The company reported a gross profit of JD2.70mn in 2007 an increase of 19.58% from the JD2.26mn recorded in 2006. Net profit for the year 2007 was JD0.69mn, up by 5.71% from the JD0.65mn reported in 2006. The net profit margin declined to 18.18% in 2007 down from 20.17% in 2006. In 2007, the company has paid an income tax of JD0.05mn for the years 2006 and 2007.
The company’s balance sheet size grew by 5.76% in 2007 to reach JD13.00mn from JD12.29mn in 2006. Accounts receivables, which constituted 29.00% of total assets in 2007, increased by 5.88% to reach JD3.66mn in 2007 from JD3.46mn in 2006. On the liabilities side, the total current liabilities were JD1.74mn in 2007, up by 12.74% over the JD1.55mn reported in the previous year, whereas the long term liabilities decreased by 59.51% in 2007 to reach JD0.12mn vis-à-vis JD0.30mn reported in the previous year.
Total shareholder’s equity increased to JD11.13mn in 2007, up by 76.11% from the JD10.44mn reported in the previous year. In 2007, both ROAA and ROAE declined to 5.47% and 6.41% from 5.54% and 6.46%, respectively, achieved in 2006.
Jordan's pharmaceutical market is small as a result of having a population of just around 5.7mn people. The Jordanian pharmaceutical industry has grown at a healthy rate over the past ten years thanks to the export market. In 2007, the pharmaceutical sector contributed to 9.4% of Jordan’s total exports.
Like its peers HPIC derives a significant portion of its sales from exports. Recently HPIC has expanded its export revenues from countries within the MENA region such as Iraq, Algeria and Lebanon. In 2008, the company underwent an inspection that will grant it an approval to export its product to all the GCC members for the next 5 years. We believe that the company has a good growth potential which can be achieved by focusing more on R&D to bring more molecules to the market and increasing its production and exposure to other markets.
