19 November 202019 November 202018 November 2020

Results Review: 3QFY20

HLIB Research
PP 9484/12/2012 (031413) Hup Seng Industries
Gan Huan Wen
hwgan@hlib.hongleong.com.my Staple immune from Covid-19
(603) 2083 1726
3Q20 core PAT of RM12.0m (QoQ: +36.8%, YoY: +18.8%) brought 9M20 sum to

BUY (Maintain)
RM30.5m (+4.5% YoY). This is in line with ours and consensus expectations,
accounting for 73.2% and 74.0%, respectively. We keep our forecasts unchanged.
Target Price: RM1.00 We maintain our BUY call and TP of RM1.00 based on 18x PE multiple of FY21
Previously: RM1.00 earnings. At current price levels, HSI is yielding an attractive 6.3%.
Current Price: RM0.955
In line. 3Q20 core PAT of RM12.0m (QoQ: +36.8%, YoY: +18.8%) brought 9M20 sum
Capital upside 4.7% to RM30.5m (+4.5% YoY). This is in line with ours and consensus expectations,
Dividend yield 6.3% accounting for 73.2% and 74.0%, respectively. 9M20 core PAT is arrived at after
Expected total return 11.0% adjusting for a one off RM4.4m in underpayment of sales tax pertaining to previous
years.
Sector coverage: Consumer
Company description: Hup Seng Industries Dividend. DPS of 2 sen was proposed, entitlement date to be announced at a later
manufactures and markets crackers, cookies, date (3Q19: 2 sen). 9M20 DPS amounted to 4 sen (9M19: 4 sen). This is within our
biscuits and other confectionery food items. expectations.

Share price QoQ. Increase in sales (+22.1%) was from better biscuit sales (+27.7%) due to (i)
rebound in export sales; and (ii) seasonal strength. Note that export sales had dipped
during 2Q20 due to HSI failing to meet some orders due to transport restrictions
associated with the MCO. Core PAT rose 36.8% in tandem with better sales.

YoY. Better domestic sales (+16%) and export sales (+9%), particularly to Myanmar,
resulted in top line growing by 13.8%. HSI shared this was achieved as they were able
to meet demand during the RMCO period without issue. In tandem with stronger sales,
core PAT grew 18.8%.

YTD. Despite transport restrictions impacting export orders during the MCO period
earlier in the year, HSI managed to grow export sales by 3%, which was attributed to
Historical return (% ) 1M 3M 12M
Absolute 4.9 2.7 5.5 better sales to Myanmar, Singapore and Indonesia. Coupled with better domestic sales
Relative -1.7 1.0 5.5 (+10%), revenue grew 8.0%. Core PAT grew by a lesser quantum (+4.5%) than sales
growth due to slightly higher raw material cost.
Stock information
Bloomberg ticker HSI MK Outlook: Despite our forecasted EPS of 5.2 sen in FY20, we do not expect HSI to cut
Bursa code 5024 its dividend amount of 6 sen per annum. Note that HSI had paid out 6 sen DPS in FY18
Issued shares (m) 800 and FY19 which represented 111% and 115% payout ratio of full year earnings ,
Market capitalisation (RM m) 764 respectively. We do not doubt the group’s ability to pay out 6 sen per share for the
3-mth average volume (‘000) 542
foreseeable future given its net cash position of RM84.1m (10.5 sen per share) as of
SC Shariah compliant Yes
end-Sep 2020, coupled with strong cash flow generation from its operations.
Major shareholders
HSB Group 51.0 Forecasts: Unchanged as results are in line
Norges Bank 2.9
Cekap Capital 2.5 Maintain BUY, TP: RM1.00. We maintain our BUY call and TP of RM1.00 based on
18x PE multiple of FY21 earnings. We reckon HSI remains an attractive stock pick at
Earnings summary this juncture given its business operations are relatively unaffected by the recent
FYE (Dec) FY19 FY20f FY21f reimplementation of CMCO rules. Furthermore, at current price levels, it is yielding an
PAT - core (RM m) 41.5 41.7 43.7 attractive 6.3%.
EPS - core (sen) 5.2 5.2 5.5
P/E (x) 18.4 18.3 17.5

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Hup Seng Industries l Results Review: 3QFY20

Financial Forecast
All items in (RM m) unless otherwise stated
Balance Sheet Income Statement
FYE Dec FY18 FY19 FY20f FY21f FY22f FYE Dec FY18 FY19 FY20f FY21f FY22f
Cash & Equivalents 96.3 85.5 72.6 64.1 57.1 Revenue 307.4 309.5 315.9 326.5 337.6
Receivables 35.2 36.8 37.2 38.5 39.8 EBITDA 63.4 61.7 61.9 65.0 66.2
Inventories 25.4 24.3 26.0 26.8 27.7 EBIT 57.8 56.1 56.3 59.1 59.9
PPE 75.7 79.4 83.8 88.0 91.7 Finance cost - - - - -
Others 3.9 8.2 8.2 8.2 8.2 Associates & JV - - - - -
Assets 236.5 234.2 227.7 225.5 224.5 Profit before tax 57.8 56.1 56.3 59.1 59.9
Tax (14.8) (14.6) (14.6) (15.4) (15.6)
Payables 49.3 53.1 52.9 55.0 57.6 Net profit 43.0 41.5 41.7 43.7 44.3
Debt - - - - - Minority interest - - - - -
Others 28.9 29.3 29.0 29.0 29.0 PATAMI 43.0 41.5 41.7 43.7 44.3
Liabilities 78.2 82.4 81.9 83.9 86.6 Exceptionals - - - - -
Core PATAMI 43.0 41.5 41.7 43.7 44.3
Shareholder's equity 158.3 151.8 145.5 141.2 137.5
Minority interest - - - - - Consensus 41.2 44.8 46.1
Equity 158.3 151.8 145.5 141.2 137.5 HLIB/Consensus 101.1% 97.6% 96.2%

Cash Flow Statement Valuation & Ratios

FYE Dec FY18 FY19 FY20f FY21f FY22f FYE Dec FY18 FY19 FY20f FY21f FY22f
PATAMI 43.0 41.5 41.7 43.7 44.3 Core EPS (sen) 5.4 5.2 5.2 5.5 5.5
D&A 5.7 5.6 5.6 5.9 6.3 P/E (x) 17.8 18.4 18.3 17.5 17.2
Working capital 1.0 3.2 (2.2) (0.1) 0.5 EV/EBITDA (x) 10.5 11.0 11.2 10.8 10.7
Others (3.7) 0.9 - - - DPS (sen) 6.0 6.0 6.0 6.0 6.0
CFO 46.0 51.2 45.0 49.5 51.1 Dividend yield 6.3% 6.3% 6.3% 6.3% 6.3%
BVPS (RM) 0.2 0.2 0.2 0.2 0.2
Capex (4.2) (16.6) (10.0) (10.0) (10.0) P/B (x) 4.8 5.0 5.3 5.4 5.6
Others 2.7 2.9 - - - Market Cap 764.0 764.0 764.0 764.0 764.0
CFI (1.5) (13.7) (10.0) (10.0) (10.0)
EBITDA margin 20.6% 19.9% 19.6% 19.9% 19.6%
Changes in debt - - - - - EBIT margin 18.8% 18.1% 17.8% 18.1% 17.7%
Shares issued - - - - - PBT margin 18.8% 18.1% 17.8% 18.1% 17.7%
Dividends (48.0) (48.0) (48.0) (48.0) (48.0) Net margin 14.0% 13.4% 13.2% 13.4% 13.1%
Others - - - - -
CFF (48.0) (48.3) (48.0) (48.0) (48.0) ROE 27.1% 27.4% 28.6% 31.0% 32.2%
ROA 18.2% 17.7% 18.3% 19.4% 19.7%
Net cash flow (3.5) (10.8) (13.0) (8.5) (6.9) Net gearing Net Cash Net Cash Net Cash Net Cash Net Cash
Forex/others (9.0) (9.0) (9.0) (9.0) (9.0)
Beginning cash 90.8 87.3 76.5 63.6 55.1
Ending cash 96.3 85.5 72.6 64.1 57.1

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Hup Seng Industries l Results Review: 3QFY20
Figure #1 Quarterly results comparison
FYE Dec (RM m) 3Q19 2Q20 3Q20 QoQ (%) YoY (%) 9M19 9M20 YoY (%)
Revenue 76.7 71.4 87.3 22.1% 13.8% 221.7 239.6 8.0%
-Biscuit Manufacturing 57.5 51.7 66.1 27.7% 14.8% 163.9 177.7 8.4%
-Beverage Manufacturing 2.0 1.7 1.8 3.0% -13.5% 6.1 5.5 -10.0%
-Trading Division 54.1 54.9 62.6 14.0% 15.8% 162.3 178.2 9.8%
-Inter-segment sales (37.0) (31.4) (43.2) -37.4% -16.7% (107.4) (113.6) -5.7%
Gross Profit 25.9 23.2 28.9 24.7% 11.6% 76.2 77.9 2.1%
Other Operating Income 0.9 0.6 0.7 4.4% -29.6% 3.0 2.2 -26.5%
General & Administrative expenses (4.9) (4.8) (5.5) -15.3% -14.2% (14.9) (15.4) -4.0%
Selling & Marketing expenses* (8.2) (7.2) (12.1) -68.2% -47.4% (24.2) (27.7) -14.8%
EBITDA 15.3 13.4 13.5 0.9% -11.7% 44.5 41.6 -6.6%
EBIT 13.8 11.8 11.9 1.0% -13.4% 40.2 36.9 -8.3%
-Biscuit Manufacturing 9.0 6.3 5.7 -8.6% -36.6% 23.3 19.4 -16.7%
-Beverage Manufacturing 0.2 0.2 0.1 -33.5% -31.8% 0.5 0.5 7.8%
-Trading Division 5.2 5.9 7.3 23.4% 40.7% 18.5 19.6 5.9%
-Unallocated expenses (0.6) (0.6) (1.2) -114.5% -90.0% (2.1) (2.6) -27.2%
PBT 13.8 11.8 11.9 1.0% -13.4% 40.2 36.9 -8.3%
PAT 10.1 8.8 7.6 -13.4% -24.8% 29.2 26.1 -10.6%
Core PAT 10.1 8.8 12.0 36.8% 18.8% 29.2 30.5 4.5%
EPS (sen) 1.3 1.1 1.0 -13.4% -24.8% 3.6 3.3 -10.6%
Core EPS (sen) 1.3 1.1 1.5 36.8% 18.8% 3.6 3.8 4.5%

ppt ppt ppt

Gross Profit margin (% ) 33.8% 32.4% 33.1% 0.67 (0.65) 34.4% 32.5% (1.9)
EBITDA margin (% ) 20.0% 18.7% 15.5% (3.27) (4.49) 20.1% 17.4% (2.7)
EBIT margin (% ) 18.0% 16.6% 13.7% (2.87) (4.30) 18.1% 15.4% (2.7)
PBT margin (% ) 18.0% 16.6% 13.7% (2.87) (4.30) 18.1% 15.4% (2.7)
PAT margin (% ) 13.2% 12.3% 13.7% 1.47 0.57 13.1% 12.7% (0.4)
*RM4.4m in underpayment of sales tax from previous years was included in selling & marketing expenses.

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Hong Leong Investment Bank Berhad (10209-W)
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1. As of 19 November 202019 November 202018 November 2020, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this
report:
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2. As of 19 November 202019 November 202018 November 2020, the analyst(s) whose name(s) appears on the front page, who prepared this report, has interest in the
following securities covered in this report:
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Published & printed by:

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Stock rating guide

BUY Expected absolute return of +10% or more over the next 12 months.
HOLD Expected absolute return of -10% to +10% over the next 12 months.
SELL Expected absolute return of -10% or less over the next 12 months.
UNDER REVIEW Rating on the stock is temporarily under review which may or may not result in a change from the previous rating.
NOT RATED Stock is not or no longer within regular coverage.

Sector rating guide

OVERWEIGHT Sector expected to outperform the market over the next 12 months.
NEUTRAL Sector expected to perform in-line with the market over the next 12 months.
UNDERWEIGHT Sector expected to underperform the market over the next 12 months.

The stock rating guide as stipulated above serves as a guiding principle to stock ratings. However, apart from the abovementioned quantitative definitions, other
qualitative measures and situational aspects will also be considered when arriving at the final stock rating. Stock rating may also be affected by the market capitalisation of
the individual stock under review.

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Hong Leong Investment Bank Berhad (10209-W) l Results Review: 3QFY20

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