Kenanga Research (Kenanga) maintains OUTPERFORM call on HPP Holdings Berhad (HPP) today (Oct 20) despite disappointing results of the packaging service provider’s 1QFY24 results.
In its Results Note, it also keeps its TP of RM0.72, based on an unchanged 13x FY25F PER at a premium to the average historical forward PER of 10x for the manufacturing sector.
“This is largely to reflect HPPHB’s niche strength in high-quality box printing and a strong client base comprising prestigious multi-nationals.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” it said.
Kenanga cuts HPP FY24F net profit by 16% to reflect softer demand for its non-corrugated packaging products and higher input cost, while maintaining its FY25F numbers.
“Its 1QFY24 core net profit of RM2.3m disappointing, coming in at only 14% and 16% of our full-year forecast and the full-year consensus estimate, respectively,” it adds.
It added that Year-on-Year, HPP 1QFY24 revenue dropped by 21% due to lower sales across the board.
These include for corrugated packaging products (-30% YoY), non-corrugated packaging products (-14% YoY) and rigid boxes (-43% YoY), especially from customers in the electrical and electronic (E&E), sheath contraceptive and (food and beverage) F&B industries.
Kenanga notes that HPP was hit by higher input costs with a drop in core net profit by 44% while QoQ, its revenue only inched up 1%.
“A significant rebound in the top line of corrugated packaging products (+55%) driven by a pickup in orders from customers in the E&E space, was offset by lower sales from noncorrugated packaging products (-8%) and rigid boxes (-16%) which key customers are in the production of sheath contraceptives and pharmaceutical products.
“Similarly, its core net profit dropped 26% due to higher input costs.”
Kenanga says it continue to like HPP for its strong long-term growth prospects, globally recognised G7 Master Colourspace certification and robust customer base
“Risks to our call include a slow recovery in the global consumer electronics sector, the volatility in the cost of inputs, particularly paper pulp, and high customer concentration in the consumer electronics segment.”
Yesterday, it was reported that HPP saw its net profit fell by 46.5% year-on-year for the first quarter ended Aug 31, 2023 (1QFY2024), amid lower sales in the corrugated and non-corrugated packaging segments as well as the rigid box segment.
Its net profit dropped to RM2.29 million or 0.59 sen per share for 1QFY2024, from RM4.28 million or 1.1 sen per share a year ago.
