For 9MFY20, HPMT registered core PATAMI of RM4.8m declining by 15% YoY; this was within expectations, forming 72% of our full year forecast. Renewed lockdowns at its key markets poses demand risks for its products. Going forward, management intends to focus on improving cost efficiency and eventually benefit from a gradual economic recovery. Maintain forecast and HOLD rating with same TP of RM0.39 (based on FY21 core EPS of 3.5sen pegged to 11x PE).

Within expectations. HPMT reported 3QFY20 results with revenue of RM18.6m (6.2% QoQ, -4.1% YoY) and core PATAMI of RM2.2m (37.0% QoQ, -15.0% YoY). This brings 9MFY20 earnings to RM4.8m, declining by -29.4% YoY. The result accounts for 72% of our full year forecasts, which is within expectations.

Dividends. DPS of 0.38 sen going ex on 4 Dec-2020 was declared for the quarter (9MFY20: 0.88 sen; 9MFY19: 0.87 sen).

QoQ. Core earnings increased by 37.0% aided by revenue rebound of 6.2% on the back of increased orders from dealers looking to replenish inventory levels. The quarter also saw improved EBIT margin of 4ppts to 18% as a result of better manufacturing efficiency achieved compounded by additional wage subsidies given by the government. 2QFY20 was also a low base due to imposition of the MCO which saw operations resuming towards end-April.

YoY/YTD. YoY and YTD core earnings declined -15.0% and -29.4% mainly due to the imposition of various forms of MCO which significantly impacted operations in 2QFY20. Operations in 3QFY20 have also not recovered to pre-pandemic levels as weakness in the global economy has resulted in lower demand for HPMT’s products.

Outlook. With the resurgence in Covid-19 cases in Europe, various countries have reinstated controlled lockdowns (e.g. Germany and Italy). Given that Europe represents a key market for the company, we reckon this could dampen HPMT’s recovery trajectory. Given such, management will continue to focus on enhancing production efficiency to improve product competitiveness moving forward.

Forecast. Unchanged as the results were inline.

Maintain HOLD; TP of RM0.39. Maintain HOLD with same TP of RM0.39. Our TP is derived from pegging FY21 EPS to 11x P/E multiple (at the lower end of peers). Stock offers a cyclical exposure to an eventual economic recovery which we reckon warrants a revisit once a firmer recovery footing is established.

Source: Hong Leong Investment Bank Research - 24 Nov 2020