HIL’s 1QFY24 results met expectations. Its 1QFY24 net profit rose 52% YoY driven largely by strong auto parts sales to Perodua and higher property profits. Its manufacturing business will be buoyed by the all-new Perodua D66b in early-2025. We maintain our FY24 net profit forecast, but raise our FY25 number by 10% and lift our TP by 17% to RM1.10 (from RM0.94). Maintain MARKET PERFORM.

HIL’s 1QFY24 net profit met our expectation at 24% of our full-year forecast. Consensus estimate is unavailable. It declared a first and final NDPS of 3 sen, which is within our forecast.

YoY, HIL’s 1QFY24 revenue grew 47% underpinned by: (i) a 22% top-line growth at its manufacturing segment on strong sales of auto parts to its major customer, Perodua (unit sales rose 9% to 85,896 units), and (ii) a 135% top-line growth at its property segment on the back of strong take-up for its Amverton Townhouses (80% sold as at March 2024) and Amverton Links Phase 3 (soft launch, below 10% sold as at March 2024)

Its core net profit rose by a steeper 52% thanks to better margins from auto parts supplied to new car models, i.e. Perodua Axia, and Alza, and maiden profit from the sales of Amverton Links Phase 3.

QoQ, HIL’s 1QFY24 revenue rose 3% driven by a stronger manufacturing top-line (+7%) on full utilisation of production capacity to cope with strong orders from its major customer, Perodua (of which unit sales fell 12% in 1QFY24 due to extended holidays but HIL’s auto parts supply to Perodua was not materially affected), partially negated by weaker property revenue (-5%) as its terrace houses in Sg Buloh was already fully sold in 4QFY23. However, its core net profit fell 3% largely due to a higher effective tax rate.

Forecasts. We maintain our FY24F net profit forecast but raise our FY25F number by 10% to account for stronger manufacturing business driven by the expected new launch of all-new Perodua D66b in early-2025 (which was delayed from the initial launch of April-2024 due to more stringent safety checks).

Valuations. Correspondingly, we raise our SoP-derived TP by 17% to RM1.10 from RM0.94, as we also roll forward our valuation base year to FY25F (from FY24F). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see page 5).

Investment case. We like HIL for: (i) robust demand in by its manufacturing division underpinned by strong orders for auto parts especially for new car models, i.e. Perodua Axia and Alza, upcoming models i.e. Perodua D66b with auto part order backlogs currently ranging from two to six months, depending on which customers, and (ii) its healthy pipeline of property projects. However, we are mindful of HIL inherently having little bargaining power against its customers, i.e. large auto makers. This puts it in a precarious situation on a rising cost environment. Maintain MARKET PERFORM.

Risks to our call include: (i) weaker-than-expected demand and prices for auto parts, (ii) higher input costs, and (iii) sustainability of recovery in the property sector.

Source: Kenanga Research - 4 Jun 2024