HIL reported core PATMI RM6.9m in 2QFY22 (+1.8% QoQ; +61.6% YoY) and RM13.6m in 1HFY22 (+37.0% YoY), within HLIB’s expectation and consensus. We expect HIL’s performance to slow into 2HFY22 as the continued momentum of automotive manufacturing parts and components are offset by the lower recognition from property development segment. Maintain BUY recommendation on HIL with an unchanged TP: RM1.14 based on SOP.

Within expectation. HIL reported core PATMI RM6.9m for 2QFY22 (+1.8% QoQ; +61.6% YoY) and RM13.6m for 1HFY22 (+39.6% YoY). We deem the result within HLIB’s FY22 expectation (58.3%) and consensus (51.8%). We expect earnings to slow into 2HFY22, as the stronger demand for domestic automotive productions will be offset by slower earnings recognition from property development segment.

Dividend: None.

QoQ: Core PATMI was relatively flattish +1.8% to RM6.9m as higher contributions from property development segment was offset by lower contribution from manufacturing segment as well as higher effective tax rate during the quarter.

YoY/YTD. Core PATMI improved +61.6% YoY to RM6.9m and +37.0% YTD to RM13.6m on stronger contribution from manufacturing segment (driven by ramping up production for domestic automotive sector), which was partially offset by lower recognition from property development segment as major projects have already reached tail-end.

Outlook. HIL will continue to leverage onto the high order backlogs of new vehicles as major OEMs ramp up production to meet the deliveries prior to end of 31 March 2022. However, property segment will likely to slowdown into 2HFY22, prior to the launching of the new JV developments in 4QFY22.

Forecast. Unchanged.

Maintain BUY, TP: RM1.14. We maintain BUY on HIL with unchanged TP of RM1.14 (fully diluted basis) based on the SOP valuation. We opine that the valuation is justifiable by: (i) its healthy balance sheet with net cash position of RM135.4m (40.8 sen/share) as at 2QFY22; (ii) sales growth from manufacturing segment; (iii) earnings growth from current pipeline of new property launches; and (iv) strong support from major shareholder with huge landbank of c. 4,000 acres.

Source: Hong Leong Investment Bank Research - 26 Aug 2022