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Wednesday, January 13, 2016

Stock Pick: Hup Seng Industries Berhad

Hup Seng Industries Berhad increased by 3.88% to close at RM1.34. 

HUP SENG's cream crackers

The stock has a low beta of 0.61 and of low volatility. 

The company mainly manufactures biscuit such as cream crackers, crackers, marie biscuits, cookies for domestic and export markets. 

While the company is currently trading at P/E of 20.64 which is on the high side, Hup Seng has a very strong balance sheet. The company has zero borrowing and and is cash rich with RM115.3 million as of the latest quarter report.This is very good especially in turbulence time. It is also not affected by a lot of speculators given that the volume is rather stable and low. It is definitely a counter that one could consider for the long term.
The company is also giving out dividend on a consistent manner, which is about 4.1% in yield.

The company's latest earnings report were in November. The 3QFY2015 report shows revenue grew 10% to RM206.8 million, driven by both domestic and export market. Cream crackers continued to be the strong performer for the Group. Profit before tax on the other hand jumped 51% to RM52.9 million. The increase in profit was largely due to improved sales margin brought about by lower input costs, weaker Ringgit and successful modification in the pricing strategy.

I personally love this stock and the management team who have proven themselves historically. The negative side of choosing this counter could be the lack of liquidity as the stock is not as liquid as other stocks that were heavily traded. The valuation with P/E of 20.64 is slightly on the high side but I think given the reliability of the management team, the premium paid for the stock is well justified. Definitely a counter to hold for the long term, say 5 to 10 years in my view.

DISCLAIMER: This is just an analysis of the stock based on our own opinion. We do have a bit of holding in Hup Seng Industries Berhad.

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