HIL’s 1HFY23 results met expectations. Its 1HFY23 core net profit rose 30% YoY driven by improved manufacturing and property earnings. While its auto part manufacturing business is riding on a booming local auto market, it inherently has little bargaining power with its customers, i.e. large auto makers. We maintain forecasts, TP of RM0.78 and UNDERPERFORM call.
HIL’s 1HFY23 results came in at 57% and 60% of our full-year forecast and the full-year consensus estimate, respectively. We deemed the results within expectations, having considered the normal quarterly fluctuation in its property earnings.
YoY. HIL’s 1HFY23 revenue grew 13% underpinned by: (i) a 7% top line growth at its manufacturing segment on strong demand for auto parts as auto makers rushed to fulfil order backlogs to meet the SST exemption deadline and additional bookings from Hari Raya promotional campaigns, and (ii) a 24% top line growth at its property segment which recovered thanks to strong take-up for its recently-launched 154 units of Amverton terraces and townhouses.
However, its core net profit rose by a larger 30% thanks to improved margins arising from better selling prices for parts supplied to new car models, i.e. Perodua Axia and Alza as well as for upcoming models i.e. Perodua D66b.
QoQ, HIL’s 2QFY23 revenue rose 15% as a weaker manufacturing top line (due to lower production at the Perodua plant during the festive month) was more than offset by a massive 151% jump in property revenue (which typically fluctuates from quarter to quarter). Its core net profit jumped 44% driven by lumpy property profits.
Outlook. We believe HIL’s manufacturing division will continue to do well, underpinned by strong orders for auto parts with robust demand for new car models, i.e. Perodua Axia and Alza, upcoming models i.e Perodua D66b and possibly with the addition of Proton X90 (which may boast an even higher localisation rate). Its auto part order backlogs currently range from two to six months, depending on customers. However, we are cautious on the outlook for the property sector given the elevated mortgage rates while property lending by banks remain restricted. Consumers may also postpone property purchases amidst high inflation that eats into their disposable incomes.
Forecasts. Maintained
We also maintain our SoP-derived TP of RM0.78 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see page 5).
We remain cautious on HIL’s prospects. While its auto part manufacturing business is riding on a booming local auto market, it inherently has little bargaining power with its customers, i.e. large auto makers. This puts it in a precarious situation on a rising cost environment. Also, from the standpoint of equity investors, they have better proxy to the booming local auto market via significantly larger and more liquid auto makers/distributors. Maintain UNDERPERFORM.
Risks to our call include: (i) stronger-than-expected demand and prices for auto parts, (ii) easing in input costs, and (iii) a strong recovery in the property market.
Source: Kenanga Research - 25 Aug 2023
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Created by kiasutrader | Aug 23, 2024
Created by kiasutrader | Aug 23, 2024