KUALA LUMPUR (Oct 20): Kenanga Research has trimmed its forecast for HPP Holdings Bhd’s net profit by 16% in the financial year ending May 31, 2024 (FY2024) on softer demand for non-corrugated packaging products and higher input cost.

This follows the group's disappointing core net profit of RM2.3 million in the first quarter ended Aug 31, 2023 (1QFY2024), which is significantly below Kenanga's full-year projection by 14% and the consensus estimate by 16%.

The packaging services provider’s net profit dropped 46.5% to RM2.29 million in 1QFY2024 from RM4.28 million as revenue declined 21% to RM19.01 million from RM24.06 million a year earlier.

Despite the weak 1QFY2024 and anticipated lower 2QFY2024 earnings, Kenanga anticipates a near-term earnings boost from the group's high-margin paper pulp moulded packaging products that serve as a Styrofoam alternative.

“This alternative to Styrofoam is made of eco-friendly recycled materials. It is also cost-effective, free from the hefty environmental taxes imposed on Styrofoam packaging in various countries. There is a strong and ready market for the new products from both existing and new customers given their recyclable attribute, which meets stringent EU environmental standards and ride on the rising global ESG (environmental, social and governance) trend,” said Kenanga in a note.

Additionally, Kenanga expects a demand recovery from the group's customers in the electrical and electronics sector as they replenish their inventory, along with the introduction of a new product by a significant customer.

Kenanga maintained its ‘outperform’ call for HPP, with an unchanged target price of 72 sen.

At the time of writing, HPP’s share price was trading down 1.5 sen or 3.95% at 36.5 sen, giving it a market capitalisation of RM141.78 million.