The biscuits maker cut its payout rate to 71% or four sen per share for FY23.
PETALING JAYA: Hup Seng Industries Bhd
’s lower dividend payout rate in financial year 2023 (FY23), despite its cash pile rising year-on-year, has led analysts to cut their forecast on the company’s payout rate for the coming years.
The biscuits maker, which had a dividend payout rate of 90% and above of earnings in the past, cut its payout rate to 71% or four sen per share for FY23, which was short of MIDF Research’s expectation for a payout rate of 94%.
“We have revised our dividend payout ratio downward to 80% (from the previous estimate of 95%).
“This is based on the assumption the group aims to preserve more cash to mitigate potential downside risks and to fuel future investments necessary for maintaining competitiveness within the industry,” the research house said in a report on Hup Seng.
For FY23, Hup Seng posted a 73% year-on-year (y-o-y) jump in net profit of RM45.1mil, or an earnings per share of 5.64 sen, as revenue rose 12.3% y-o-y to RM357.3mil.
This was helped by stronger sales in the domestic and export markets as well as lower costs for certain major input materials. Its net cash by the year end hit RM90.5mil.
The strong FY23 performance led MIDF Research to raise its FY24-FY25 earnings forecast upwards for Hup Seng by 5.8% and 2.2%, respectively, and introduced its FY26 forecast.
The research house said the forecast adjustment was made after considering the increased domestic sales last year were driven by solid demand for biscuits and the anticipation of a slight shift in Malaysian consumer preference towards local brands.
Lower raw material costs, especially of wheat, sugar and crude palm oil (CPO) prices, was another plus factor.
“Additionally, we have adjusted our distribution cost forecast upward by 9% and 15% (FY24/FY25), in line with the expectation of higher sales and taking into account anticipated higher transportation costs,” it added.
MIDF Research has maintained its “buy” call on Hup Seng with a revised target price of 99 sen a share (from 98 sen) based on an appealing FY24 price-earnings (PE) multiple of 12.1 times, which is below the company’s five-year historical mean PE of 18.2 times.
The research house, however, warned the downside risk to its call on Hup Seng would come from a sharp escalation in commodity prices, particularly CPO, sugar and wheat flour.
