HIL reported core PATMI RM4.3m in 4QFY22 (-41.7% QoQ; -65.7% YoY) and RM25.3m in FY22 (-19.1% YoY), below both HLIB’s expectation (89.7%) and consensus (79.9%), dragged by higher operating cost (manufacturing) and delay in new property launches. We expect HIL’s performance to rebound again in FY23, mainly underpinned by the strong momentum of automotive manufacturing parts and components as well as encouraging demand for its new project launches. Maintain BUY recommendation on HIL with an unchanged TP: RM1.18 based on SOP.

Below expectations. HIL reported core PATMI RM4.3m in 4QFY22 (-41.7% QoQ; -65.7% YoY) and RM25.3m in FY22 (-19.1% YoY). We deem the results below both HLIB’s FY22 expectation (90.2%) and consensus (89.2%), due to lower than expected margins for both manufacturing and property development segments.

Dividend: None. Usually will be announced during AGM.

QoQ: Core PATMI declined by -41.7% to RM4.3m due to higher manufacturing operating costs and lower property project progress (as major projects have already reached tail end while new projects have not been launched yet) as well as higher effective tax rate during the quarter.

YoY. Core PATMI dropped by -65.7% mainly due to fall in sales volume for manufacturing segment as well as lower sales recognition from property development segment following completion of major projects in SPLY.

YTD. Despite flattish revenue, core PATMI declined by -19.1% to RM25.3m on weaker contribution from property development segment (as major projects have already reached tail-end), partially cushioned by higher contribution from manufacturing segment (driven by ramping up production for domestic automotive sector).

Outlook. HIL will continue to leverage onto the high order backlogs of new vehicles in 2023. Management has previously guided for the strong orderbook to last until late 2023 and there is increasing components portfolio for new upcoming car models. Property development segment will also see uptick in 2023 as the recent soft launches of their new project development has seen encouraging demand in 4QFY22.

Forecast. Unchanged.

Maintain BUY, TP: RM1.18. We maintain BUY on HIL with an unchanged TP of RM1.18 on a fully diluted basis (from RM1.14) based on the SOP valuation. We opine that the valuation is justifiable by: (i) continued build up net cash position of RM138.7m (41.8 sen/share) as at FY22; (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 - 28 Feb 2023