HPI's net profit slipped

HPI Resources Bhd ("HPI") is involved in the manufacture of corrugated carton & plastic packaging products. The corrugated carton packaging division contributes 90% of the group's turnover & all its profit, while the latter contributes the remaining of its topline but nothing to the bottomline.

HPI has just reported its results for 3Q2008 ended 29/2/2008. Its net profit dropped 14.8% q-o-q from RM4.0 million to M3.4 million, while turnover increased by 9.5% from RM70.0 million to RM81.4 million during the same periods. The net profit for QE28/2/2007 has benefited from a refund of other investment of RM1 million, which was earlier provided for as impairment loss. When compared to the same quarter last year, net profit had increased by 5.8% while turnover was 16.3% higher.



HPI (closed at RM0.80 as at April 2nd) is trading at a trailing PE of 2.6 times (based on last 4 quarters' EPS of 31 sen) or at a P/Book of 0.4 times (based on its NTA per share of RM2.25 as at 29/2/2008). At this valuation, HPI is deemed very attractive.

From the weekly chart below, we can see that HPI has broken below its medium-term uptrend line support at RM0.87-90. Currently, it is resting at the horizontal support of RM0.80. The next horizontal support is at RM0.60.


Chart: HPI's weekly chart as at April 2, 2008 (courtesy of Quickcharts)

Based on attractive valuation, HPI is a good BUY for the medium-term. Nevertheless, one should accumulate slowly as the technical outlook has been somewhat compromised by the violation of the medium-term uptrend.