Lower demand for packaging hurts HPP’s earnings

PETALING JAYA: Kenanga Research has cut its earnings forecast for HPP Holdings Bhd by 39% for the company’s financial year ending May 31, 2025 (FY25), citing weaker-than-expected demand from the consumer electrical and electronics (E&E) segment and higher input costs.

The research house said core net profit for the producer of paper packaging products in the nine months ended Feb 28, 2025 (9M25), came in at RM1.8mil, accounting for just 52% of its earlier full-year forecast.

“The shortfall was mainly due to weaker-than-expected sales and lower margins, stemming from sub-optimal plant utilisation of about 40%,” the research house said.

Kenanga Research said that while earnings visibility remains weak, potential recovery drivers include new high-margin recyclable paper pulp moulded packaging products and a pick-up in orders, particularly from restocking by clients in the E&E and sheath contraceptive sector.

For 9M25, HPP recorded revenue of RM47.24mil, down 7.34% from RM50.98mil in the corresponding period last year, weighed down by weaker average selling prices and softer demand from the E&E segment.

Net profit for the period fell more sharply, plunging 53% to RM801,000 from RM1.73mil in 9M24.

This was due to fixed costs that did not scale with reduced volumes, resulting in inefficient plant runs and margin erosion.

However, on a quarterly basis, the research house noted that HPP’s core net profit for its third quarter ended Feb 28, 2025, rose 17%, underpinned by increased sales volume, notably from its high-margin paper pulp moulded packaging products.

While it has revised its FY25 earnings forecast for HPP downward, the research house maintained its FY26 numbers.

“Our forecast is based on the expectation that the consumer E&E segment has likely hit a bottom and HPP experiencing a rebound in orders later this year,” it said.