HIL Industries - Double Happiness

Date: 
2024-02-23
Firm: 
KENANGA
Stock: 
Price Target: 
0.94
Price Call: 
BUY
Last Price: 
0.91
Upside/Downside: 
+0.03 (3.30%)

HIL’s FY23 results beat expectations. Its FY23 core net profit rose 77% YoY, driven by strong auto parts sales to Perodua and higher property profits. We raise our FY24 net profit forecast by 2%, lift our TP by 3% to RM0.94 (from RM0.91) and maintain our MARKET PERFORM call.

HIL’s FY23 net profit beat our expectation by 15%. The variance against our forecast was from stronger-than-expected property profits. There is insufficient research coverage by the market to form consensus estimate.

YoY. HIL’s FY23 revenue grew 16% 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 330,325 units), and (ii) a 43% top-line growth at its property segment on the back of strong take-up for its Amverton townhouses (80% sold as at Dec 2023) and terrace houses in Sg Buloh (fully sold at Dec 2023).

Its core net profit rose by a steeper 77% thanks to better margins from both auto parts supplied to new car models, i.e. Perodua Axia, and Alza, and the sales of terrace houses in Sg Buloh.

QoQ, HIL’s 4QFY23 revenue rose 5% driven by a stronger manufacturing top-line (+6%) on full utilisation of production capacity to cope with strong orders from its major customer, Perodua (unit sales rose 10% to 97,098 units) as well as improved property revenue (+3%), which typically fluctuates from one quarter to another. However, its core net profit was flattish due to the initial high production cost for auto parts supplied to the all-new Perodua D66b, partially offset by higher property profits (+68%).

Forecasts. We raise our F24F net profit forecast by 2% to reflect better property profits. We also introduce FY25F net profit of RM47.3m (+5%).

Valuations. Correspondingly, we raise our SoP-derived TP by 3% to RM0.94 from RM0.91. 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 for 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 - 23 Feb 2024

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