For FY20, HPMT registered core PATAMI of RM8.3m declining by -9% YoY; this was above expectations on the back of better than expected costs cutting. Recovery is expected for FY21 with utilisation rate targeted to average 65-75% in 1Q21. Nonetheless, end-user contribution to recovery is anticipated to be uneven given its diversified geographical and end markets exposure. Increase FY21-22 forecasts by 8%. Maintain HOLD rating with higher TP of RM0.49 (based on FY21 core EPS of 4.1sen pegged to 12x PE).

Beat expectations. HPMT reported 4QFY20 results with revenue of RM18.1m (-2.3% QoQ, 0.7% YoY) and core PATAMI of RM3.6m (61.6% QoQ, 53.3% YoY). This brings FY20 earnings to RM8.3m, declining by -8.8% YoY. The result accounts for 125% of our full year forecasts, which is above our expectations.

Deviation. While revenue came in within expectations (102% of forecast), the results beat were largely due to better than expected costs savings during the quarter.

Dividends. DPS of 0.5 sen going ex on 5 Mar-2021 was declared for the quarter (FY20: 1.38 sen; FY19: 1.24 sen).

QoQ/YoY. QoQ and YoY, core earnings increased by 61.6% and 53.3% despite relatively flattish revenue performance (-2.3% QoQ, 0.7% YoY). HPMT’s cost savings during the quarter led to a -18% QoQ and -16% YoY decline in admin and distributive costs respectively which boosted core earnings. Recall that due to Covid-19, HPMT proceeded to cut costs such as exhibition, marketing, travelling and also received wage subsidies from the government thereby enhancing its profitability margin.

YTD. Core earnings declined by -8.8% in tandem with the -8.6% revenue decline due to the effects of Covid-19 pandemic. The negative operating leverage impact was mitigated by cost cutting measures as mentioned above.

Outlook. Management is more optimistic for FY21 prospects with key customers overall sounding a more positive tone in 2021. Nonetheless, end-user contribution to recovery is anticipated to be uneven given its diversified geographical and end markets exposure. HPMT aims to sustain utilisation rate of 65-75% in 1Q21, an improvement over an average of 50-60% achieved in 2020. Generally, demand recovery is to be driven by mould and die, precision component, electronic as well as automotive segment. As for product ASPs, HPMT does not expect changes given that sales are mostly for existing product lines with no drastic pricing adjustments foreseeable. On the costs front, raw materials and marketing expenses are expected to increase slightly moving forward with the former on a more gradual basis. Wage costs are also anticipated to recover to pre-pandemic levels when government subsidies end (not intending to apply for extension as it may not qualify on the profit decline requirement).

Forecast. Increase FY21-22 core earnings by 7.6% and 7.7% after adjusting for margin beat.

Maintain HOLD; TP of RM0.49. Maintain HOLD with higher TP of RM0.49 (from RM0.46). Our TP is derived from pegging FY21 EPS to 12x P/E multiple. .Stock offers a cyclical exposure to an eventual economic recovery but we believe our numbers may have captured this. Trading at FY21-22 P/E multiple of 11.8/11.3x, prospects are largely baked in.

Source: Hong Leong Investment Bank Research - 23 Feb 2021