Despite challenging operating environment, we remain sanguine on HUPSENG’s prospects (HLIB TP RM1.38, +27.8% upside), due to the minimal impact from an increase in minimum wage; widening of margins from cheaper realised palm oil price this year; improving consumer sentiment, continuous products portfolio innovation, broadening distributor networks (local and overseas) coupled with business optimisation and operations efficiencies. Valuation is attractive at 15.7x FY19 P/E (9.7% below peers and 19% below 10Y average), supported by a steady FY17-20 EPS CAGR of 9%, strong RM71m net cash and attractive FY19-20 DY of 5.7-6.0%.

An icon in the Malaysian F&B scene. HUPSENG (listed in Nov 2000) is engaged in the manufacture and sales of biscuits, beverages and confectionery food items with manufacturing facilities located in Batu Pahat and Senai in Johor. The products produced and distributed by the Group can be summarized into the following product ranges: (i) Biscuits: Crackers, cream sandwich biscuits, assorted biscuits, cookies and other series; (ii) Beverages: Instant beverages mix and (iii) Other agents products: Rice crackers and Chinese tea, snacks products.

Intensifying exports market. While retaining prominent market position in Malaysia, HUPSENG is also promoting its international presence in more than 40 countries around the world, with Asia being its major exporter. The top five exported countries are Thailand, Saudi Arabia, Indonesia, Singapore, and Myanmar which collectively constitutes about 57% of total FY17 export revenue. The Group has appointed about more than 60 agents and distributors to market its products overseas. The agents and distributors play an important role in promoting the Group’s products overseas and it is envisaged that they would pave the way for greater brand awareness and customer loyalty. Exports currently make up about 29% (2016: 28%) of the Group’s revenue, with an objective to break the RM100m mark or 32% of revenue by 2020

Poised for a breakout. We expect more upside pending a triangle breakout. A successful breakout above downtrend line near RM1.11 will spur greater upside towards RM1.16 (23.6% FR) before reaching our LT objective at RM1.28 (23 May 2017). Key supports are situated at RM1.05 (support trendline) and RM1.02 (6 Apr 2018 low). Cut loss at RM0.995.

Source: Hong Leong Investment Bank Research - 1 Aug 2018