Hup Seng Industries Bhd maintained a cautiously optimistic outlook, backed by stable demand for its products and a shift in Malaysian consumer preferences towards local brands. The company's strong net cash position provides resilience against potential challenges, while a steady dividend payout continues to attract investors.

However, rising input costs, particularly for palm oil and other essential raw materials, could present margin pressures going forward.

MIDF Amanah Investment Bank Bhd (MIDF Research) has reaffirmed a NEUTRAL stance on Hup Seng, keeping its target price unchanged at RM1.04, indicating a potential downside of 5.9%. MIDF Research expects a total return of 2.26%, with a projected dividend yield of 3.6%. Hup Seng's solid performance over the first nine months of the financial year 2024, including a 27.2% year-on-year (YoY) rise in core profit after tax and non-controlling interests (PATANCI) to RM40.7 million, has largely met expectations.

The company's revenue for the third quarter of 2024 (3Q24) climbed to RM104.4 million, up 10.9% YoY, supported by strong domestic and export demand, which also benefitted from production efficiencies. A new commercial oven has bolstered production capacity, enabling Hup Seng to meet growing demand across retail and modern trade channels, with notable export growth in key markets like Saudi Arabia, Indonesia, Japan and Singapore.

Quarter-on-quarter, Hup Seng's 3Q24 core PATANCI rose by 86.5%, driven by a 30% increase in revenue. The company declared a second interim dividend of two sen per share and a special dividend of one sen per share during the period, rewarding shareholders amid improved financials. Enhanced profitability from lower input costs, particularly sugar, contributed to a higher gross profit margin of 31.4%, up from 29.6% in 3Q23.

Looking forward, MIDF Research forecasts steady revenue growth for Hup Seng, expecting RM377.7 million in FY24 and projected to reach RM407.4 million by FY26.

Despite the rising input costs that could affect profitability, the company's consistent dividend yields, forecasted at 4.8% for FY24 and rising to 5.9% by FY26, underscore its appeal for income-focused investors.