HPI's net profit margin eroded

Results Update

HPI has just reported its results for 3Q2010 ended 28/2/2010. Its net profit dropped 49% q-o-q but rose 109% y-o-y to RM3.1 million. Turnover increased by 7% q-o-q or 22% y-o-y to RM94 million (see the table below). The drop in net profit on q-o-q basis was attributable to increased raw material cost. I have appended below the net profit margin and the top-line & bottom-line movement over the past 21 quarters (see Chart 1 & 2 below).


Table: HPI's last 8 quarterly results


Chart 1: HPI's net profit margin for last 21 quarters


Chart 2: HPI's last 21 quarterly results

Valuation

Based on a normalized net profit margin of 4%, HPI's EPS would be about 29 sen. At yesterday's closing price of RM1.68, HPI would be trading at a PER of 5.8 times. At the multiple, HPI is still an attractive stock.

Technical Outlook

HPI has been drifting lower for the past 1 month (see Chart 3). It may test its 50-day SMA line support at RM1.63 or its short-term uptrend line support at RM1.57-58. From the weekly chart (Chart 4), we can see that HPI has very strong horizontal support at RM1.50.


Chart 3: HPI's daily chart as at Apr 5, 2010 (Source: Tradesignum)


Chart 4: HPI's weekly chart as at Apr 5, 2010 (Source: Tradesignum)

Conclusion

Based on inexpensive valuation, HPI is rated either a SLOW ACCUMULATION or a HOLD. However, the decline in net profit margin is a concern which warrant close tracking of this stock.