HPP Holdings Berhad is set to gain from profitability boost in 1QFY24/251 (quarter starts 1 June 2024) that has seen improved utilisation in its paper moulded packaging division driven by rising environmental standards.

Its paper pulp division has seen an improvement in utilisation to 30%, compared to 15% in 3QFY23/24 (December 2023 – February 2024).

However, the main challenge for the low utilisation rate could be technical, caused by a delay related to TNB's electricity capacity registration. This issue is expected to be resolved by October 2024, allowing the utilisation rate to gradually exceed 50%.

HPP Holdings specialises in total packaging solutions ranging from pre-press, press to post-press, including the printing and production of paper-based packing, corrugated and non-corrugated packaging, as well as brochures, leaflet, labels and paper bags.

Analysts project that recyclable paper pulp moulded packaging products will be the key earnings driver in the long term as most of HPP's customers are transitioning from styrofoam to recyclable packaging to adhere to rising environmental standards, especially for those exporting to the European Union (EU) market.

Kenanga Research has downgraded the MARKET PERFORM call to UNDERPERFORM call citing the recent run-up of HPP's shares, while retaining the previously-set target price of RM0.39.

As at 3:52pm on Oct 11, HPP's shares traded at RM0.45. (Stock updates from Bursa Malaysia)

Additionally, HPP is expected to receive increased orders from Karex Berhad following the launch of the latter's new synthetic condom line.

Karex new synthetic condom line is expected to generate revenue with larger deliveries projected in 2025 if the product performs well.

As the exclusive packaging supplier of this product, HPP has fulfilled its first order in November.

Based on preliminary estimates, this could conservatively generate at least RM3 million in annual reven ue as Karex is HPP's largest customer, contributing around 37% of the firm's total revenue.

HPP continues to be favoured by the market for its niche strength in high- quality box printing, and a strong client base comprising prestigious multi-nationals.

The packaging standard of HPP is certified by the G7 Master Colourspace, enabling the firm to establish a strong footing in the supply chain of MNCs through the provision of design, multi-colour and high-resolution offset or flexographic printing solutions.

Moreover, its environmental-friendly paper pulp moulded packaging, a substitute to styrofoam packaging, complies with the stringent EU environmental standards and are not subject to hefty environmental taxes currently imposed on styrofoam packaging in various countries.

1. Financial year to end 31 May 2025, FY2024/25 (1 June 2024 to 31 May 2025).
   1QFY24/25 corresponds to the period from 1 June 2024 to 31 August 2024. ︎