4Q20 core PAT of RM9.9m (QoQ: -17.2%, YoY: -19.8%) brought FY20 core PAT to RM40.4m (YoY: +3.7%). This is in line with our and consensus expectations, accounting for 97% and 98%, respectively. As results were in line, we keep our forecasts unchanged. We are encouraged by the group’s showing that it still charted an improvement despite the unprecedented year brought by Covid-19. At current price, it has a rewarding dividend yield of 6.4% and a net cash position of 10.3 sen per share. We maintain our BUY call and TP of RM1.00 based on 18x PE multiple of FY21 earnings.

In line. 4Q20 core PAT of RM9.9m (QoQ: -17.2%, YoY: -19.8%) brought the full year FY20 sum to RM40.4m (YoY: +3.7%). This is in line with our and consensus expectations, accounting for 97% and 98%, respectively.

Dividend. Proposed dividend of 2 sen (4Q19: 2 sen) per share. FY20 DPS amounted to 6 sen (FY19: 9 sen). Ex-date will be announced in due course.

QoQ/YoY. Sales of RM87.7m were flat (+0.5% QoQ; -0.1% YoY) on the back of decreased in export markets (-5% QoQ; -16% YoY) that offset the improvement in domestic market (+3% QoQ; +7% YoY). The lacklustre showing in export market was due to the global shortage of shipping containers in Asia and ports congestion from Nov 2020 onwards. Despite flat top line, core PAT declined by (-17.2% QoQ; -19.8% YoY) to RM9.9m due to higher cost of raw materials and opex.

YTD. Top line inched up by +5.7% of RM327.3m from better domestic sales (+9%) across all channels. Core PAT registered softer improvement of 3.7% to RM40.4m due to higher raw material cost that impacted the overall margin.

Outlook. Despite the stable sales, Hup Seng gross profit margin has been deteriorating on the back of the higher CPO price (FY20: RM2,800/MT vs FY19: RM2,173/MT). Our house expects CPO price to average at RM2,700/MT in 2021. Note that CPO makes up approximately 40% of the group’s raw material cost. However, being a consumer staple with non-perishable products (i.e. biscuits), we reckon HSI should be able to defend it strong market presence with its variety of product offerings.

Forecasts. Unchanged as Results Are in Line.

Maintain BUY, TP: RM1.00 based on 18x PE multiple of FY21 earnings. We are encouraged by the group’s showing that it still charted an improvement despite the unprecedented year brought by Covid-19. We reckon HSI remains an attractive stock pick at this juncture given its business operations are relatively unaffected by the reimplementation of MCO rules. At current price, it has a rewarding dividend yield of 6.4% and a net cash position of 10.3 sen per share.

Source: Hong Leong Investment Bank Research - 18 Feb 2021