HIL’s 1HFY24 results met expectations. Its 1HFY24 net profit rose 34% YoY driven largely by strong auto parts sales to Perodua and higher property segment’s profit. Its manufacturing business will be buoyed by the all-new Perodua D66b in early-2025 and new manufacturing plant in 3QFY24. We maintain our forecasts and TP of RM1.10. Upgrade to OUTPERFORM from MARKET PERFORM as value has emerged after the recent correction in its share price.

HIL’s 1HFY24 net profit met our expectation at 52% of our full-year forecast. Consensus estimate is unavailable.

YoY, HIL’s 1HFY24 revenue grew 36% underpinned by: (i) a 39% top-line growth at its manufacturing segment on strong sales of auto parts to its major customer, Perodua (unit sales rose 17% to 169,849 units), and (ii) a 31% top-line growth at its property segment on the back of strong take-up for its Amverton Townhouses (90% sold as at June 2024) and Amverton Links Phase 3 (10% sold as at June 2024).

Its core net profit rose 34% thanks to better margins from auto parts supplied to new car models, i.e. Perodua Axia, and Alza, and higher profit from the sales of Amverton Links Phase 3.

QoQ, HIL’s 2QFY24 revenue was flat (-1%) on stronger manufacturing top-line (+1%) on full utilisation of production capacity to cope with strong orders from its major customer, Perodua (of which unit sales fell 2% in 2QFY24 due to extended holidays but HIL’s auto parts supply to Perodua was not materially affected). This partially negated the weaker property revenue (-5%) as its Amverton Townhouses almost fully taken-up.However, its core net profit rose 15% largely due to a lower effective tax rate at 24.5% vs 30.5% in 1QFY24.

Outlook. HIL’s new factory in Bukit Sentosa is expected to start operations by 3QFY24 and will enable it to expand the capacity (based on our estimates, up to 20% increase in capacity) as well as enable it to move downstream and produce its own PU sheets which are currently imported.This will allow HIL to enhance its competitiveness and reduce any risk of delay as a result of any transhipment issues.

Forecasts. Maintained

Valuations. We also maintain our SoP-derived TP at RM1.10 (see page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see page 4).

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.

Upgrade to OUTPERFORM from MARKET PERFORM as value has emerged after the recent correction in its share price.

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 - 29 Aug 2024