KUALA LUMPUR: MIDF Research raised its earnings forecast for Hup Seng Industries Bhd for financial years 2023 (FY23) and 2024 by 11.3 per cent and 8.4 per cent.
This was after accounting for a lower cost of sales caused by a drop in the cost of raw materials.
Hup Seng's core net profit of RM26.4 million for FY22 exceeded both MIDF Research and consensus' full-year FY22 projections at 123.2 per cent and 133 per cent respectively.
"The positive deviation was mainly due to the better-than-expected margin, which was supported by lower costs for certain raw materials," MIDF Research said today.
On quarterly basis, Hup Seng's revenue increased by 35.2 per cent to RM94.9 million, mainly due to stronger sales in all three divisions namely biscuit manufacturing, beverage manufacturing and trading segments.
Its core net profit more than doubled from to RM12.4 million in the fourth quarter of FY22.
"Cumulatively, the group's revenue rose 7.6per cent year-on-year (YoY) to RM318.2 million due to higher export and domestic sales. However, earnings were dragged down by higher competition in the industry and rising cost of commodities which reduced gross profit margin by three percentage points YoYto 24.6 per cent.
"As a result, core profit after tax declined from RM27.8 million in FY21 to RM26.4 million in FY22."
MIDF Research maintained a "Buy" call on the stock with a higher target price of 85 sen from 79 sen previously.
It continued to like Hup Seng underpinned by its relatively stable demand for the biscuits due to its well-known household brand name, consistent dividend payout and strong net cash position of RM62.4 million in FY22.
"The earnings outlook for FY23 is also expected to be underpinned by lower raw material costs such as crude palm oil and wheat, which are the primary materials used in biscuit production," it added.