HIL’s 9MFY24 results met expectations. Despite a knee jerk reaction to the short maintenance break of its major customer in 3QFY24, its 9MFY24 net profit remain strong, rising 21% YoY driven largely by strong auto parts sales to Perodua and higher property segment’s profit. Its manufacturing business will be buoyed by the all-new Perodua D66b in early-2025 and new manufacturing plant in 1QFY25. We maintain our forecasts, TP of RM1.10 and OUTPERFORM call.

HIL's 9MFY24 net profit met our expectation at 74% of our full-year forecast. Consensus estimate is unavailable.

YoY, HIL's 9MFY24 revenue grew 13% underpinned by: (i) a 20% top-line growth at its manufacturing segment on strong sales of auto parts to its major customer, Perodua (unit sales rose 12% to 260,361 units), and (ii) 2% top-line growth at its property segment on the back of strong take-up for its Amverton Townhouses (fully sold as at October 2024) and Amverton Links Phase 3 (32% sold as at October 2024)

Its core net profit rose 21%, thanks to better margins from auto parts supplied to new car models, i.e. Perodua Axia, and Alza, and higher profit from the sales of Amverton Links Phase 3.

QoQ, HIL's 3QFY24 revenue plunged 27% on weaker manufacturing top- line (-22%) as HIL's auto parts supply was affected by the closure of its major customer Perodua's plant for 10 days in September 2024 for scheduled maintenance, and weaker property revenue (-36%) due to slower Amverton townhouses development from revised building plan. All in, its core net profit plunged 19% which was partially offset by a lower effective tax rate at 22.0% vs 24.5% in 2QFY24.

Outlook. HIL's new factory in Bukit Sentosa is expected to start operations by 1QFY25 and will enable it to expand the capacity (capacity doubled by adding one more production line from existing one production line) as well as enable it to move downstream and produce its own PU sheets which are currently imported. This will allow HIL to enhance its competitiveness and reduce any risk of delay as a result of any transhipment issues.

Forecasts. Maintained

Valuations. We also maintain our SoP-derived TP at RM1.10 (see page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see page 4).

Investment case. We like HIL for: (i) robust demand in its manufacturing division underpinned by strong orders for auto parts especially for new car models, i.e. Perodua Axia and Alza, upcoming models i.e. Perodua D66b with auto part order backlogs currently ranging from two to six months, depending on which customers, and (ii) its healthy pipeline of property projects. The share price has declined 8% YTD, which we believe has been factored in with HIL now trading at 6.4x based on our FY25F EPS, which is cheap versus historical average of 11x and auto sector's average forward PER of 11x. Maintain OUTPERFORM.

Risks to our call include: (i) weaker-than-expected demand and prices for auto parts, (ii) higher input costs, and (iii) sustainability of recovery in the property sector.

Source: Kenanga Research - 27 Nov 2024