PETALING JAYA: A subdued earnings outlook has been projected for HPP Holdings Bhd
, given the demand downcycle for electrical and electronics (E&E) consumer products due to high inflationary pressures.
This forms the bulk of HPP’s sales or about 63% of financial year 2022 (FY22) revenue.
The margin gains from lower input costs may be limited as HPP lacks pricing power as the market is fragmented, said CGS-CIMB Research.
This, it said, is evidenced by cuts in its selling price to customers.
Kenanga Research, on the other hand, expects a more promising FY24.
It said this is based on a recovery in demand in the consumer electronics space, in line with the recovery in the global economy and sustained growth in demand from its customers in sheath contraceptives, food and beverage and pharmaceutical segments.
Besides that, it would see the maiden contributions from its paper pulp moulding segment, a new product with a ready market, said Kenanga Research.
CGS-CIMB Research cut its FY23-25 earnings per share (EPS) by 30.8% to 31% to reflect its lower revenue assumptions, given softening E&E consumer demand.
It also downgraded HPP to a “hold” from “add.”
In line with its EPS cuts, its target price (TP) has been dropped to 32 sen.
Kenanga Research cut its FY23 and FY24 earnings by 27% and 16% respectively to reflect softer demand from its customers in the consumer electronics segment on slowing global economy.
It also reduced its TP by 17% to 44 sen.
Kenanga Research said it continues to like HPP for the strong long-term growth prospects of its end-users, namely the consumer electronics, sheath contraceptives, F&B and pharmaceutical segments.
HPP has globally recognised G7 Master Colorspace certification that enables it to carve itself a strong footing in the supply chain of multinational companies, providing design, multicolour and high resolution offset or flexographic printing solutions.
It also has a strong customer base.
HPP reported nine months FY23 core net profit of RM8.2mil.
