KUALA LUMPUR: MIDF Research maintains a cautiously optimistic view on Hup Seng Industries Bhd's outlook for the financial year 2024 (FY24) on stable product demand and the growing preference among Malaysian consumers for local goods.
It said that Hup Seng's consistent dividend payouts and strong net cash position provide a solid buffer against potential downside risks, further reinforcing the positive outlook.
However, the firm has adjusted its rating on the company from 'buy' to 'neutral,' due to the significant increase in stock prices since the first quarter of financial year 2024 (1QFY24), with the average price-to-earnings ratio (PER) of 17 times approaching the market's average PER of 17.5x.
"While the local food and beverage (F&B) market is relatively stable, the risk of commodity prices rising remains high, which would subsequently drive domestic and export sales lower in the near term," MIDF Research added.
Hup Seng's first half of financial year 2024 (1HFY24) revenue rose 3.5 per cent year-on-year (YoY) to RM173.8 million, driven by increased domestic sales across all channels and robust export sales to Myanmar, Indonesia, and Singapore.
Its gross profit margin rose 2.8 percentage points YoY to 31.3 per cent due to higher sales, as well as the lower input costs of certain materials.
1HFY24 core profit after tax and non-controlling interests (PATANCI) rose 24.9 per cent YoY to RM23.4 million.
Despite a quarterly revenue decline of 1.6 per cent to RM80.2 million, core PATANCI for the second quarter of financial year 2024 (2QFY24) increased by 5.4 per cent quarter-on-quarter (QoQ) to RM9.3 million.
This improvement was due to weaker performance in export markets from Thailand, Saudi Arabia, and East Malaysia.
MIDF Research noted that since 1HFY24 results align with estimates, it has kept its earnings forecast unchanged for the financial years 2024 to 2026 (FY24-FY26).
Despite downgrading its rating on Hup Seng, the firm has raised the target price to RM1.04 from 99 sen.