Hup Seng Industries Bhd has been on an uptrend in the past 6 months, rising 17% to close at 80 sen on Feb 16.

The counter looks likely to surpass its 52-week high of 85 sen seen November last year, making its way upwards after hitting a low of 62 sen.

Based on technical charts, Hup Seng could head towards resistance thresholds of

89 sen and 95 sen, meaning investors could enjoy 11% and 19% upside potentials

respectively.

Fundamentally, investors are expecting things to get better for the biscuits and beverage manufacturer and distributor.

There were concerns regarding the volatility in global commodity prices, with prices at elevated levels due to unfavorable weather condition in major producing countries.

Notably, El Nino phenomenon, tighter export supplies, and geopolitical tensions have kept commodity prices high.

These factors exert cost and margin pressure on F&B companies including Hup Seng.

However, the outlook look bright for Hup Seng with anticipated recovery in USDMYR to RM4.40 per Dollar in 2024, giving some buffer against elevated commodity prices.

This is because most global commodities are sourced and purchased in USD.

On the flip side, a stronger ringgit may crimp the revenue of export-oriented F&B companies.

In 3QFY23, Hup Seng saw its export sales growing 10% (RM1.6 million), mainly 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.

F&B players may want to focus on generating higher sales volumes over maximizing margins on the back of challenging environment.

For Hup Seng, sales are likely supported by increasing demand and improved production cost.

Its margins are stabilising, aided by the gradual softening of commodity prices and the anticipated strengthening of the ringgit.

Hup Seng posted a 239% YoY jump in net profit of RM13 million in 3QFY23, taking its 9MFY23 net profit to RM31.4 million (an increase of 130% YoY).

This was driven by robust domestic sales, particularly in the biscuits segment, which accounts for about 94% of total sales.

Hup Seng’s net earnings are forecasted to rise to RM45.8 million in FY2024 from RM42.1 million in the previous year, implying prospective price earnings ratio of 15.2x and 14.0x, respectively.

The ongoing Israel boycott movement could also could benefit local manufacturers like Hup Seng despite the higher selling prices, whereby an uptick in demand for local products is highly foreseeable.

This positive outlook is further supported by Hup Seng's commitment on efficient cost management through their sustainability initiatives, namely by reducing fuel costs, waste minimisation, and carbon emissions reduction.

WIth such positivity on the horizon, investors might want to take a bite of Hup Seng, which is looking increasingly appetising.