Hup Seng Industries faces challenging business outlook: BIMB

HUP SENG Industries Bhd (Hup Seng) still has a ‘hold’ call at BIMB Securities Research given the challenging business outlook, elevated production costs and weak consumer sentiment following an inflationary environment.

“We recently met with a key person from [Hup Seng] for a management meeting. Following the meeting, we remain cautious on its outlook considering the headwinds and challenges facing the company,” it said in a research note released today.

Its target price is unchanged at 69sen. At 2.30pm, the stock was trading at 64sen.

In the note, BIMB Securities said the rising input cost is a bane for Hup Seng including flour, CPO and crude oil no thanks to unfavourable external conditions including the global supply chain disruption. 

It said this was also added by various factors that are beyond Hup Seng’s control – like inflationary pressure, labour shortages, COVID-19 lockdown in China, Russia-Ukraine conflict – key risks to raw material costs, and hence, its bottom line in the near term.

“Management shared that it did not do any hedging strategy to mitigate the increase in raw material costs, but rather adjusting its pricing strategies and/or re-sizing major products when needed,” it said.

It said rising cost is a concern as it can lead to a decline in margin as seen in the 1H22 results where net margin dropped by 2.6 ppts year-on-year to 6.4%. – TMR