HPP Holdings Bhd (HPP) recorded a 4QFY5/23 core net profit of RM3.3m, bringing its FY5/23 core net profit to RM11.1m.
“The outperformance in earnings came from higher gross profit margins, higher interest income from deposits, and lower share based payment expense,” said CGSCIMB in the recent Company Note.
Its non-corrugated packaging segment delivered solid sales of RM49.5m in FY23 owing to strong demand from a pharmaceutical client, but this was insufficient to offset weaknesses in the other segments, notably the corrugated packaging segment which recorded sales of only RM15.9m due to soft demand from the consumer electrical and electronics (E&E) industry.
“Its rigid box trading, rigid box production, and other segments recorded revenues of RM8.2m, RM2.4m and RM4.7m respectively,” said CGSCIMB.
CGSCIMB believes HPP’s sales to the E&E segment will stay below 2021-22 peaks due to the downcycle for E&E consumer products, potentially due to inflationary pressures and soft end-user demand.
They forecast stable mid-single-digit sales growth for each segment and expect stable gross profit margins for their forecast period. CGSCIMB maintains their Hold rating but with a higher Target Price of RM0.36.
“We believe it’s share price will be supported by its dividend yields of 4.7% and healthy net cash position of RM37.3m as at end-FY23,” said CGSCIMB.
Key upside/downside risks identified by CGSCIMB include stronger-/weaker-than-expected sales from its consumer E&E business segment, and higher-/lower-than-expected margins due to lower/higher material costs.
