KUALA LUMPUR: HPP Holdings Bhd, which has been a long-term beneficiary of trade diversion from China amid the ongoing US-China trade spat, is seeing strong sales orders from new electronics and electrical (E&E) customers as the company seeks to diversify its packaging supply base away from China.
CGS-CIMB Research said this could be due to the ongoing Covid-zero policy and intermittent operation disruptions in China.
As a result, HPP saw its sales contributions as a percentage of total revenue from its new E&E customers rise to 15.1 per cent in the first quarter of FY23 from 13.6 per cent in FY22.
"We also understand that HPP has recently secured a new E&E customer that could potentially bring in an additional RM400,000-RM500,000 per month in sales, a boon to its revenue trajectory," it said in a note today.
CGS-CIMB Research said that during a post-site visit and briefing to HPP recently, the company shared that it is securing sales orders from potential customers from two new key end-user industries in the coming quarters, namely, the glove and cosmetic products sectors.
"We foresee HPP gaining a foothold in these two sectors with ease
given its strong track record, a wide range of quality paper packaging products and large scale of operations to cater to larger orders.
"We view this as a positive development given that HPP could further diversify its revenue base and reduce its customer concentration risks moving forward.
In addition, CGS-CIMB Research gathered that pricing for its packaging products for its potential glove customers could be 20 per cent higher versus peers.
"We understand HPP is the first printing packaging company in Malaysia to attain such a certification, which is often a key requirement for its clientele," it added.
CGS-CIMB Research has retained its 'Add' call on HPP with an unchanged target price of 55 sen.