Hup Seng FY23 Results Beat Expectations

Hup Seng Industries reported FY23 core PATANCI of RM45.8m, after excluding a onetime item of RM0.7m. MIDF said the results exceeded both its consensus full-year FY23 core PATANCI, accounting for 107% and 109% of the street’s. The house noted that the positive deviation was mainly due to the lower-than-expected raw material input costs, which raised the core PATANCI.

With better dividend yet below expected, the group proposed a 3rd interim single-tier dividend of 1.5sen/share and a special dividend of 0.5sen/share, with the entitlement date to be announced in due course. This led to a total dividend of 4sen/share for FY23, greater than 3.0sen/share in FY22. However, the dividend payout ratio was at 70.9% in FY23, falling below previous expectation of 94%. Historically, the dividend payout ratio was above 90% before the pandemic. On the other
hand, the net cash increased +44.9%yoy to RM90.5m in FY23.

Lower input costs lifted 4QFY23 earnings. On a yearly basis, the revenue rose marginally by +0.2%yoy to RM95.1m, mainly lifted by better domestic sales that more than offset the decline in export sales. Despite a small bump in revenue, the core PATANCI increased +11.5% yoy, mainly due to the cost reduction of certain essential input ingredients (such as wheat and CPO). On a quarterly basis, revenue grew +1%qoq to RM95.1m, mainly supported by greater export sales to Thailand,
Indonesia, and China. The drop in global commodity prices for certain main ingredients also led to lower input costs and hence a higher gross profit margin (+1.1ppt qoq). As such, the core PATANCI improved +4%qoq to RM13.8m.

Stronger bottom line in FY23 mainly boosted by robust sales and lower costs. The FY23 core PATANCI surged +73.5yoy to RM45.8m, which was in tandem with the uptick in revenue by +12.3% yoy to RM357.3m. This was mainly driven by stronger sales volume from both domestic and export markets as well as lower costs for certain major input materials

The house raised its FY24-25F earnings forecast and introduced FY26F. Given that the earnings surpassed expectation, MIDF
revised its FY24F-25F earnings forecasts upward by +5.8%/+2.2%. This adjustment was made after considering
increased domestic sales driven by solid demand for biscuits and the anticipation of a slight shift in Malaysian consumer
preference towards local brands, and lower raw material costs, attributed to the normalization of wheat and CPO prices,
as well as the recent decline in global sugar prices.

MIDF maintains a BUY call with a revised TP of RM0.99 (from RM0.98).

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