KUALA LUMPUR: HIL Industries Bhd's earnings growth momentum is expected to sustain into the financial year 2022 (FY22)-FY24, driven by new property launches and maintaining strong earnings contribution from domestic manufacturing.

Hong Leong Investment Bank (HLIB) Research said increasing plastic manufacturing would underpin the growth momentum for automotive industry-driven major clients Perodua, Toyota, and Honda with higher content and cars and the growing contributions from their pipeline of new property launches.

"We expect earnings to slow down in FY22 to RM23.4 million and subsequently recover to RM31.8 million in FY23 and RM39.1 million in FY24," the firm said in a note today.

HLIB Research said HIL's manufacturing segment is highly leveraged to the expected increasing production volume and localisation of Perodua, Toyota, and Honda in Malaysia.

HIL is expanding its capacity to cater for the increasing volume and capability to cater for higher local content per car.

While HIL's first quarter (Q1) FY22 gross profit margin for domestic manufacturing achieved a new record high at 20 per cent, management guided margins to slowdown in coming quarters, affected by higher minimum wages and increasing raw material and distributional costs.

"Management is currently negotiating with OEM (original equipment manufacturer) clients for potential cost pass-through," HLIB Research added.

Meanwhile, HLIB Research said that by focusing on quick turnaround landbank for landed developments in matured areas of Shah Alam and Klang, HIL's property segment had enjoyed strong earnings growth for the past four years despite the impact of Covid-19.

"Earnings are expected to further accelerate in FY23-FY24 based on contributions from targeted new launches of Amverton Garden Townhouse and Links Phase 3 as well as recently approved four joint-venture developments.

"HIL has strong leverage on its major shareholder's private property development arm, which has a huge land bank of 4,000 acres (1,618.7 hectares)," it said.

HLIB Research has initiated its coverage on HIL with a 'Buy' call and a target price of RM1.14.