PETALING JAYA: MIDF Research has downgraded Hup Seng Industries Bhd
to “neutral” from “buy”, citing significant increases in raw material prices since the first quarter of 2024 (1Q24).
Despite the downgrade, the research outfit remained cautiously optimistic about Hup Seng’s financial year 2024 (FY24) outlook.
This is due to stable product demand, a shift in Malaysian consumer preferences for local products, consistent dividend payouts, and a robust net cash position to safeguard against potential downside risks.
However, MIDF Research highlighted the rising costs of raw materials, particularly crude palm oil (CPO), cocoa, milk powder, wheat, and sugar, as significant risks.
Nevertheless, reflecting on the sector’s stability, MIDF Research has revised the target price on Hup Seng to RM1.04 per share, from 99 sen previously.
“While the local food and beverage 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,” it pointed out.
MIDF Research said Hup Seng’s first half (1H24) core profit of RM23.4mil, came in within its full-year FY24 estimation and slightly above consensus at 44% and 50% respectively.
Moving ahead, the research firm said it is cautiously optimistic about the volatility in CPO and sugar input costs.
For the second quarter ended June 30, 2024 (2Q24), the biscuit maker saw its net profit grow 3.53% to RM9.03mil.
This is despite the marginal fall in revenue by 1.61% to RM80.24mil during the quarter under review from RM81.55mil during the same period last year due to weakened export market from Thailand and Saudi Arabia, as well as Sabah and Sarawak.
For 1H24, Hup Seng’s net profit surged by 25% to RM23mil from RM18.39mil in 1H23, due to higher sales, as well as the lower input costs of certain materials.
Its top line for the 1H24 grew by 3.49% to RM173.8mil, from RM157.93mil in 1H23, mainly driven by increased domestic sales across all channels and robust export sales to Myanmar, Indonesia, and Singapore.
“Given that 1H24 is within our estimates, we make no changes to our earnings forecast for FY24 to FY26,” MIDF Research noted.
