• Maintain BUY (TP: RM1.04). Hup Seng Industries (HSI)’s FY23 Net Profit of RM45.1mn, reflecting a substantial YoY increase of 72.9%. This made up 108.6% of our estimate, hence deemed in line with our expectation. To recap, HSI’s net profit rose threefold in 2QFY23 (187.1% YoY) with the upward adjustment in selling prices and closing the FY23. The company has restored its earnings to pre-pandemic levels (Refer Chart 1), thanks to the substantial cost reductions in major input materials and an upswing in sales volume. Nevertheless, dominantly the sales volume continues to be derived from domestic sales. We hold a positive outlook on the ongoing normalized earnings, supported by increased demand in both the local and export markets. We maintain a BUY on HSI with TP of RM1.04 pegged at 20.3x PER to FY24F EPS of 5.1sen.

• Key highlights. In 4QFY23, revenue saw a slight uptick of 1% QoQ, fuelled by an increase in export market by 18%, primarily from Thailand, Indonesia, and China. Conversely, domestic market decreased by 3% due to supply shortages. HSI has proposed an interim dividend of 1.5 sen and a special dividend of 0.5 sen, resulting in a cumulative dividend of 5.0 sen for the FY23, which translated to 6.2% dividend yield.

• Earnings Revision. No change to our forecast.

• Outlook. In anticipation of the cyclical festive season, we foresee a sustained increase in sales volume. Additionally, this is expected to be bolstered by the projected surge in demand, attributed to the perceived scarcity in the global wheat supply, indicated by reductions in stocks in significant wheat-producing countries namely India, China, and Ukraine.

Source: BIMB Securities Research - 20 Feb 2024