• Maintain BUY (TP: RM1.04). Hup Seng Industries (HSI) 9MFY23 Net Profit of RM31.4mn (+130.1% YoY) exceeded our expectation of RM27.4mn and thus above our estimate. In 3QFY23, both revenue and net profit soared by +34.2% and +238.8% YoY respectively, driven by robust domestic sales, particularly in the biscuits segment, which accounts for about 94% of total sales. We tweaked our FY23 earnings forecast upward by 34% to RM41.5mn reflecting a 5% adjustment in our cost of sales. We anticipate for sales to be supported by increasing demand and improved production cost. Meanwhile, we expect margin stability, aided by the gradual softening of commodity prices and the anticipated strengthening of the Ringgit. We maintain a BUY on HSI with higher TP of RM1.04 pegged at 20.3x PER to FY24F EPS of 5.1sen

• Key highlights. In 3QFY23, there is an increase in both revenue and net profit which rose by +34.2% and +238.8% YoY, respectively. This impressive performance was primarily driven by strong domestic sales across all segments, amounting to RM22.4mn, representing a 41% increase. Additionally, export sales growing positively by 10% (RM1.6mn), primarily from Thailand and Singapore. QoQ revenue also experienced a notable 16% increase, in the absence of effects of seasonality as experienced in the previous quarter. Nevertheless, its PBT saw a significant YoY surge of 230%, primarily attributed to escalating input costs, despite higher selling prices.

• Earnings Revision. We tweaked our FY23-25F earnings forecast higher to RM41.5mn/41.1mn/42.2mn (Table 2) as we increase our assumptions by 34%/31%/28% for FY23F/FY24F/FY25F respectively.

• Outlook. Despite the uptick in selling prices, we anticipate a surge in demand attributed to the increased focus on local products spurred by the Israel boycott movement, which in turn, could benefit HSI as a local producer. This positive outlook is further supported by HSI's commitment on efficient cost management through their sustainability initiatives, namely by reducing fuel costs, waste minimisation, and carbon emissions reduction.

Source: BIMB Securities Research - 9 Nov 2023