HPP Holdings Bhd (HPP), through its subsidiaries, is principally involved in the printing and production as well as sales and marketing of paper-based packaging, both corrugated and non-corrugated, along with trading and production of rigid boxes. Customisable in accordance to its customers' packaging design requirements, HPP’s paper-based packaging is printed with full colour offset printing technology. Besides focusing on its principal market in Malaysia, HPP also exports its paper-based packaging to Singapore, Thailand, the Philippines, Myanmar, USA and Germany

Moving forward, HPP intends to increase its standard format printing capacity and double its production capacity for rigid box, thus better positioning the group to meet the growing needs of its customers in a timely manner. In addition, HPP intends to expand its reach to a wider customer base in local and overseas markets. We derive a fair value of RM0.47 based on a 12x PE multiple to its FY22F EPS of 3.9sen. The IPO is expected to raise approximately RM31.9m from the issuance of 88.7m new shares. Besides utilising 40.8% of the proceeds for capital expenditure and expansion, 16.3% and 6.3% of the proceeds are allocated for working capital and marketing expenses respectively.

• Growth drivers. HPP’s growth will be dependent on: i) increase in printing capacity with acquisition of two additional standard format printing machines, ii) increase in production capacity with acquisition of an additional rigid box production line, and iii) effort to widen customer base with marketing initiatives.
• Competitive strengths. HPP’s competitive strengths include: i) provision of customised products to meet evolving requirements, ii) serving a customer base that covers various end-user industries, iii) long term relationships with its customers and suppliers, iv) compliance with various quality control requirements, v) sustaining continuous growth of business with design and development, and vi) having an experienced key senior management team.
• Catalysts. Key drivers may include: i) growth in the essential consumer products manufacturing sector, food and beverages as well as pharmaceuticals in particular, and, ii) increasing disposable income in the long run that potentially drives greater demand for high-end consumer electrical and electronics (E&E) products with quality packaging.
• Key risks. Key downside risks, among others, include i) competition within the packaging printing industry, ii) susceptibility to shortage in the supply of raw materials, iii) susceptibility to the price fluctuation of paper, iv) reliance on the availability of foreign workers, v) dependency on the consumer E&E industry, vi) dependency on its top two major customers and vii) exposure to fluctuations in foreign exchange rate.

Source: PublicInvest Research - 7 Jan 2021