HPPHB’s FY23 results met expectations thanks to improved margins which were partially offset by reduced sales in the consumer electronics segment. Looking ahead, the group is poised to ride on the recovery in the E&E space (which contributes to >50%of its total sales). We maintain our forecasts, TP of RM0.44 and OUTPERFORM call.

Within expectations. Its FY23 core net profit of RM9.3m met both our forecast and the consensus estimate.

Results highlights. YoY, its FY23 revenue fell 6% mainly due to weaker orders from E&E customers. This was evident in lower sales at its corrugated packaging (-42% YoY) and rigid box (-44% YoY) segments, but higher sales at its non-corrugated packaging (+41% YoY) mainly catering to the pharmaceutical industry. However, its FY23 core net profit increased by 11% on an expansion in operating margin to 17% from 14% thanks to a lower input cost and higher selling prices.

QoQ, its 4QFY23 core net profit surged 90% on a stronger top line driven by better prices and lower input cost, resulting in improved margins.

Outlook. We foresee more promising FY24─25F for HPPHB on: (i) a recovery in demand in the consumer electronics space in line with the recovery in the global economy, (ii) sustained growth in demand from its customers in sheath contraceptives, F&B and pharmaceutical segments, and (iii) maiden contributions from its paper pulp moulding segment, a new product with a ready market, i.e. from HPPHB’s existing customers.

Forecasts. We maintain our FY24F earnings forecast while introduce our FY25F numbers.

Correspondingly, we maintain our TP of RM0.44 based on 13x FY24F PER, at a premium to the average historical forward PER of 10x for the manufacturing sector largely to reflect HPPHB’s solid client base with prestigious names such as Customer D that speaks volume for its proven product and service quality. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like HPPHB for: (i) the strong long-term growth prospects of its end users, i.e. the consumer electronics, sheath contraceptives, F&B and pharmaceutical segments, (ii) its globally recognised G7 Master Colourspace certification that enables it to establish a strong footing in the supply chain of MNCs, providing design, multicolour and high resolution offset or flexographic printing solutions, and (iii) its strong customer base including Customer D. Maintain OUTPERFORM.

Risks to our call include: (i) a slow recovery in the global consumer electronics sector, (ii) the volatility in the cost of inputs, particularly paper pulp, and (iii) high customer concentration in the consumer electronics segment.

Source: Kenanga Research - 24 Jul 2023