Costs to weigh on Hup Seng’s near-term outlook

PETALING JAYA: Hup Seng Industries Bhd’s near-term outlook remains challenging, due to the company’s high input costs, which are expected to put pressure on its earnings growth, analysts say.

MBSB Research said in a note it is maintaining a “neutral” call on the biscuit manufacturer’s near-term prospects, as elevated input costs continue to persist and export visibility remains cloudy, limiting earnings recovery.

“Domestic sales should remain relatively resilient, supported by the group’s established brand presence.

“Any meaningful margin recovery will hinge on the normalisation of raw-material prices and a sustained rebound in export demand,” the research house added.

MBSB Research also maintained its earnings forecasts for Hup Seng along with an unchanged target price of 92 sen per share, based on a dividend discount model valuation, assuming consistent 3% dividend growth and a weighted average cost of capital of 9.1%.

“The company’s dividend yield continues to remain attractive, but we expect near-term earnings headwinds to limit upside potential.

For its third quarter ended Sept 30, Hup Seng’s net profit dipped to RM15.47mil from RM17.27mil in the previous corresponding period, primarily due to higher input and distribution costs such as carriage outwards and distribution centre costs for outlets despite a 1% increase in revenue.

Revenue grew to RM105.7mil from RM104.43mil a year earlier.

For the first nine months of the year, Hup Seng’s net profit dropped to RM34.58mil from RM40.27mil a year earlier.

In a filing with Bursa Malaysia on its results, Hup Seng said domestic sales grew by 4% or RM8mil, mainly from super and hypermarkets and Sabah and Sarawak.

On the other hand, the export market saw a decline of about 7% or RM4mil mainly due to a decrease in exports of biscuits to Indonesia, Mauritius, Myanmar and Singapore.