A reply from Carotech CFO, WHY Carotech stock balance increase

Thank you for your support and interest in our Company. I believe you may have mistake our stock level for last year. As at 30 June 2005, we had RM15.5m in stocks and this increased to RM29.7m as at 30 June 2006. The significant increase was largely due to (1) The increase of our production capacity by 265% in FY2006 compared to FY2005. Although, the increased capacity was commissioned in the last quarter of FY2005, it was towards the last months in FY2005 and was only fully commissioned in the first quarter of FY2006. (2) Due to the significant increase in capacity, some of our old back end (phytonutrient plant) equipments could not cope with the increased capacity and was constantly failing us in FY2006. This was announced in our Q2 results announcement. Consequently, we were unable to process all our phytonutrient WIPs. We have installed the new equipments in Q4 of FY2006 and are beginning to clear the WIPs as fast as we can.

We thank you for your concern on the possible constraint to our cashflow with such high stocks and we are very mindful of it and will monitor this closely. However, as you are aware, the business of Carotech is essentially in breaking down CPO into four major components, namely Biodiesel, Glycerin, Palm Vitamin E and Carotene. We do not pick and choose what we produce as these 4 components are in CPO and would be a waste if we do not extract any of them. Therefore, inevitably our stocks would increase, in the event our plant is not able to process any of them, resulting in them being in WIP stocks.

Our stocks are keep under close monitor and tight control as these are high value stocks. We have experienced in the past holding these products for more than 3 years without any significant problems. Therefore, provided they are kept in accordance with our Standard Storage Procedures there should be ok and available for future sales once our phytonutrient plant is back to full operation. We are mindful of the need to provide or expense stocks that are no longer of value to the company and this is done monthly.

I hope the above clarifies your queries. I look forward to your continued support and interest in our companies.

Best Regards,
Andrew Goh
Chief Financial Officer Hovid Bhd / Carotech Bhd 121 Jalan Tunku Abdul Rahman 30010 Ipoh, Perak MALAYSIA Tel : +605 506 0690 ext. 166 Fax : +605 506 1215 Webpage : www.hovid.com
Subject: Carotech accounts

Dear Accountant/ Financial Controller.


I am the small investor for hovid and carotech, I asm impressive for your business model , recently when I read the Quarterly annocement for carotec, I found some question on following

1. The stocks level of Carotec from 5 m a year ago to 25m until june 2006, In view of your Sales and your Stock level is extremely exceed 120 day holding level. My question here :

a. The high stock level is for production user or what other reason, The rational to keep 120 days stock. Does short supply of Raw material or re- order lead time? if for future use, why need to build up the stock now ? This question is rather important to view the tight cashflow and heavy expansion. to cope with market demand on bio diesel.

b. Any valuation issued on stock holding ? damaged or expired goods ! need to ractify? For Company size like hovid or carotec 20 M is BIG SUM.

Hope to received reply soon as myself and my group of friend is very impress your business model.


TQ


A reply from Carotech, I am Thank for sincere reply from him, I been write to many FC/Accountant for listed company. Some of them even not reply me, some of them will only reply with very formal answer. But…
I am public this reply due to impression that, they are sincere and trust to shareholder. With the special business (bio-diesel) and the only bio- diesel operator in Malaysia (listed unit). I will keep buying Carotech and Hovid. (not any recommdation to other.Mark my word, only trust yourself!)

Only thing is the historic of it, is too short for further analyses their financial result. And recently week in their share price(0.85at last Friday 23/9/06). I saw a golden opportunity to accumulated.