Hup Seng Industries Berhad demonstrated stable product demand and strong financial performance in 1HFY24, according to reports by MIDF Amanah Investment Bank (MIDF).
MIDF downgraded its rating to NEUTRAL with a revised target price (TP) of RM1.04 from RM0.99, reflecting the recent significant price increase since 1QFY24 and concerns over rising commodity prices.
Hup Seng's 1HFY24 core PATANCI rose by +25% year-on-year (yoy) to RM23.4m, in line with full-year FY24 forecasts. Revenue increased by +4% yoy to RM173.8m, driven by higher domestic sales and lower input costs. Despite a decline in export sales, the company's gross profit margin improved by +2.8ppt to 31.3%. However, quarterly revenue fell due to weaker export markets in Thailand, Saudi Arabia, and East Malaysia.
The Bank's downgrade to NEUTRAL was due to the stock's high average Price to Earnings Ratio (PER) of 17x nearing the market's average PER of 17.5x and the risk of rising commodity prices. Despite this, Hup Seng's strong net cash position, consistent dividend payout, and stable product demand provided a cautiously optimistic outlook for FY24F. The investment bank maintained its earnings forecast for FY24-26F, citing the company's robust domestic sales and growth potential in local consumer preferences.
The analyst highlighted that Hup Seng declared a dividend of 2 sen per share during the quarter, contributing to an expected dividend yield of 6.1%. The food and beverage company's stable financial health, combined with a revised Weighted Average Cost of Capital (WACC) of 9.8%, supported its valuation amidst sector stability. The revised Beta of 0.77 from 0.80 indicated growing sector stability, reinforcing the NEUTRAL rating despite positive earnings growth.