HIL Industries Berhad’s (HIL) 9MFY23 results beat expectations on stronger-than-expected sales of auto parts to Perodua, according to Kenanga Research.
To reflect Kenanga’s recent upgrade in Perodua’s vehicle sales in CY23 and CY24, it raises its FY23-24F net profit forecasts for HIL by 16% and 4%, respectively to reflect stronger vehicle sales assumptions for its major customer, Perodua of 325k units, from 314k units and 330k units, from 320k units, respectively.
HIL’s 9MFY23 results beat expectations at 94% and 97% of the research house’s full-year forecast and the full-year consensus estimate, respectively.
“The variance against our forecast was from stronger-than-expected sales of auto parts to its major customer, Perodua,” it said.
Consequently, the research house upgrades its call to MARKET PERFORM from UNDERPERFORM and raises its SoP-derived TP by 5% to RM0.91 from RM0.87, with no adjustment to our TP based on 3-star ESG rating.
Year-on-year, HIL 9MFY23 revenue grew 20% underpinned by a 12% top line growth at its manufacturing segment on strong sales of auto parts to its major customer, Perodua that recorded a 19% increase in unit sales to 233,277 units.
“A 39% top line growth at its property segment on the back of strong take-up for its Amverton townhouses, 70% sold as at Sep 2023 and terrace houses in Sg Buloh, 99% sold as at Sep 2023.
“Its core net profit rose by a steeper 40% thanks to better margins from auto parts supplied to new car models. We like robust demand for its manufacturing division underpinned by strong orders for auto parts especially for new car models, such as Perodua Axia and Alza.
“Besides that, Perodua’s upcoming models (Perodua D66b) with auto part order backlogs currently ranging from two to six months, depending on which customers, and its healthy pipeline of property projects,” Kenanga added.
However, it is mindful that HIL inherently having little bargaining power with its customers such as large auto makers.
“This puts it in a precarious situation on a rising cost environment. Value has emerged after the recent weakness in its share price,” it added.
The risks to Kenanga’s call include weaker-than-expected demand and prices for auto parts, rise in input costs, and a prolonged slowdown in the property market.
