HPMT’s 1HFY21 core PATAMI of RM6.4m (+147.7% YoY) was within expectations. Revenue run rate has exceeded pre-pandemic levels for two quarters running as restocking activities continue to drive healthy order flows. HPMT would be able to operate at 100% by Sept as vaccinations are slated to reach 80% by end Aug. With orders looking promising, HPMT should be able to stage a stronger finish to the year. Maintain forecasts and BUY rating with higher TP of RM0.65 after rolling forward earnings to mid-FY22 EPS tagged to 15x P/E multiple. Stock offers a cyclical exposure to recovering manufacturing activities.

Within expectations. HPMT reported 2QFY21 results with revenue of RM22.3m (0.7% QoQ, 27.4% YoY) and core PATAMI of RM3.1m (-3.5% QoQ, 95.1% YoY). This brings 1HF21 core earnings to RM6.4m increasing by 147.7% YoY. Results met expectations coming in at 47% of our full year forecasts. We anticipate a weaker 3Q before rebounding towards year end.

Dividends. Second interim DPS of 0.5 sen going ex on 6 Sept-2021 was declared for the quarter (1HFY21: 0.9 sen; 1HFY20: 0.5 sen).

QoQ. Core earnings declined by -3.5% while revenue remained flattish (+0.7%). This is largely due to lower net margins achieved during the quarter (-0.7 ppts) brought about by higher staff costs.

YoY. 2QFY21 core earnings rebounded by 95.1% in tandem with the expansion in revenue (+27.4%), in part due to low base effect with 2QFY20 impacted by MCO1.0. Utilisation has remained healthy during the quarter at the 60-70% rate buoyed by healthy order flows as we believe distributors continue to restock in-line with robust demand. HPMT’s well diversified end user exposure has helped to navigate an uneven recovery path so far.

YTD. 1HFY21 core earnings came in higher by 2.5x partly due to low base last year. Strong demand for its products has also allowed for a swift revenue recovery exceeding its pre-pandemic levels for two quarters running with pent up demand driving healthy order flows.

Outlook. Despite imposition of 60% operating cap on its manufacturing workforce, supply chain disruptions and weaker domestic demand in 2QFY21 (typically 15-20% of revenue), HPMT manage to record commendable revenue performance by remaining flattish QoQ. While we reckon 3QFY21 could be sequentially weaker having lost 1 week of activity (EMCO), HPMT would be able to operate at 100% by Sept as management has guided for vaccination rate of 80% by end Aug. Domestically, we anticipate a rebound in orders with the loosening of restrictions. Abroad, orders remain robust where a diversified client base continues to pay dividends. As such, HPMT should be able to stage a stronger finish to the year.

Forecast. Maintain as Earnings Are Inline.

Maintain BUY; TP of RM0.65. Maintain BUY with higher TP of RM0.65 (from RM0.62) after rolling forward earnings to mid-FY22. Our TP is derived from pegging mid-FY22 EPS to 15x P/E multiple. Stock offers a cyclical exposure to recovering manufacturing activities. HPMT currently trades at undemanding FY21/22/23 P/E multiple of 12.8/11.8/11.5x.

Source: Hong Leong Investment Bank Research - 24 Aug 2021