KENANGA RESEARCH Results Note

29 July 2 01 0
BUY
RM1.84 HPI Resources
Target Price: RM2.89
Above expectations
Stock data l FY10 results were above our expectations. While 12M10 revenue of
Market cap (RMm): 97.9 RM372.6m was in line, net profit of RM22.8m was trending 27% higher due
Issued shares (m): 53.2 to a strong uptick in the last quarter on the back of stronger margins. Gross
52-week range: RM0.55-RM2.00 margins improved by 42 basis points to 17.8% in 4Q10 from a
3-mth avg daily volume: 178,877 shrs disappointing 3Q10 after an effective cost pass-through underpinned by
Bloomberg code: HPI MK higher paper prices in general.
YTD price chg: +42.6%
YTD KLCI chg: +6.5 % l QoQ, revenue jumped 8% to RM101.6m on improved demand dynamics
Est. free float: 59.3 % as global economic recovery gains traction. Margins as mentioned
Major shareholders: improved 42 basis points to 17.8% (3Q10 : 13.6%) as higher selling prices
Lucrabase S/B: 40.7 %
were effected in tandem with higher global paper prices. Malaysian
KLCI FBM70 FBM100 Syariah Hijrah operation saw pretax margins improve to 9.3% (3Q10 : 4.2%) while
No No No No No
Cambodia also saw improvement to 6.1% (3Q10 : 1.2%) helping to lift net
Consensus profit by 131% to RM7.2m.
FYE 31 May 2011E 2012E
Net profit (RMm): n.a. n.a. l Guiding positively as the global economic recovery gains further
EPS (sen): n.a. n.a. momentum. Based on our channel checks, strong uptick in the food &
beverage sector (which accounts for 34% of group’s business) and
Forecast revision
electrical and electronics (19%) should translate into better prospects
FYE 31 May 2011E 2012E ahead for packaging companies including HPI.
Prev. net profit (RMm): 16.2 -
Revision (%): 58.0% - l Expanding capacity further to capitalize on the growth momentum.
Revised net profit (RMm): 25.7 28.8
Group will be adding another 18,000 tonne capacity or 11% in Perak to
Share price chart bring total capacity including Cambodia’s to 186,000 tonnes by the end of
C Y2010. Capital expenditure of RM10m including equipment should not
strain balance sheet despite gearing of 66% given our forecast of
improving operational cashflows going forth.

l Forecast upgrade with FY11F net profit raised by 58% mainly on the
The Research Team Tel: 603-2713 2292
research@kenanga.com.my
back of higher margins as sumed. We also introduce our FY12F with
revenue of RM447m and net profit of RM28.8m. More engaging
management with the investment community, improved transparency
couple with the undemanding valuations should be positive re -rating
catalysts. Dividend of 5sen (tax exempt) declared which is a pleasant
surprise, yielding 2.7%. Risks remained with the volatile paper prices which
accounts for 70% of its cost of production which could impact profitability
depending on timing and effectiveness of any cost pass through.
Upgrading call to BUY with a new target price o RM2.89 on 6x FY11F.

Results Highlights
FYE 31 May (RMm) 4Q09 1Q10 2Q10 3Q10 4Q10 QoQ% YoY% 12M10 12M09 YoY%
Revenue 77.3 88.3 88.1 94.5 101.6 7.6% 31.4% 372.6 345.4 7.9%
Cost of Sales (61.1) (72.4) (71.4) (81.6) (83.5) (309.0) (291.2)
Gross Profit 16.2 15.9 16.7 12.9 18.1 40.6% 11.5% 63.6 54.2 17.3%
GP% 21.0% 18.0% 18.9% 13.6% 17.8% 17.1% 15.7%
PBT 8.2 7.0 7.6 3.6 8.9 151.0% 8.7% 27.0 22.8 18.5%
PBT% 10.6% 7.9% 8.6% 3.8% 8.8% 7.2% 6.6%
Tax (0.2) (0.6) (1.3) (0.4) (1.6) (3.9) (3.7)
Tax % -2.0% -8.0% -17.8% -10.8% -18.2% -14.5% -16.3%
MI (0.1) (0.1) (0.1) (0.0) (0.1) (0.2) (0.1)
Net Profit 8.0 6.3 6.1 3.1 7.2 131.3% -9.2% 22.8 19.0 20.4%
Net % 10.3% 7.2% 7.0% 3.3% 7.1% 6.1% 5.5%
EPS (sen) 15.0 11.9 11.5 5.9 13.6 42.9 35.6

PP7004/02/2011(029201)
 Earnings Estimates
FYE 31 May (RMm) 2008A 2009A 2010A 2011F 2012F
Revenue 329.6 345.4 372.6 394.1 447.0
Cost of Sales (273.3) (291.2) (309.0) (329.1) (373.3)
GP Profit 56.2 54.2 63.6 65.0 73.8
GP % 17.1% 15.7% 17.1% 16.5% 16.5%

EBITDA 28.7 38.6 43.2 47.8 51.2

EBITDA % 8.7% 11.2% 11.6% 12.1% 11.4%

Pretax 14.1 22.8 27.0 30.2 33.8

Pretax % 4.3% 6.6% 7.2% 7.7% 7.6%
Tax (2.5) (3.7) (3.9) (4.5) (5.1)
Tax % -17.6% -16.3% -14.5% 15.0% 15.0%
MI 0.0 (0.1) (0.2) 0.0 0.0
Net Profit 11.6 19.0 22.8 25.7 28.8
EPS 27.3 35.6 42.9 48.2 54.0
Net % 3.5% 5.5% 6.1% 6.5% 6.4%
EPS Growth 2.7% 30.8% 20.4% 12.4% 12.1%
PER(x) 6.8 5.2 4.3 3.8 3.4
EV/EBITDA(x) 6.2 4.6 4.5 3.8 3.4
CFS (sen) -20.3 136.5 8.3 49.2 45.5
P/CFS (x) -9.1 1.3 22.1 3.7 4.0
Gross DPS 0.0 2.5 5.0 5.0 5.0
Div Yield % 0.0% 1.4% 2.7% 2.7% 2.7%

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HPI Resources – 29 July 2010 Page 2 of 2