KUALA LUMPUR: HPMT Holdings Bhd's financial year 2021 (FY21) net profit representing a 66 per cent year-on-year (YoY) growth came in within Hong Leong Investment Bank Bhd's (HLIB Research) expectation.

The bank-backed research firm said the growth was driven by a 26.0 per cent increase in revenue due to upcycle demand for cutting tools with manufacturing activities in expansionary zones.

"Overall, we believe HPMT has benefitted from restocking, pent up demand and front-loading procurement in response to supply chain uncertainties throughout FY21," the research firm said.

Weaker gross profit (GP) margin in the fourth quarter (Q4) 2021 was guided to be due to enterprise resource planning (ERP) migrations and exchange rate headwinds while higher raw mat costs have been passed through.

"HPMT continues to expect steady GP margins in 2022 with higher input costs to be passed through albeit with some lag," it said.

HLIB Research said HPMT's orders in 2022 have remained steady sequentially, with mould and die, medical, electrical and electronic (E&E) end markets resilient.

"Additional machine orders in the second quarter (Q2) of 2022 would expand capacity by 10 per cent," the firm said.

Since the rise in geopolitical conflict, HPMT has not seen a discernible impact from the region.

HLIB Research reckons potential impact to tools demand could come from supply chain disruptions and energy interruption.

The firm has tweaked its FY22 and FY23 forecasts by four per cent/one per cent.

"Post-briefing, we maintain Buy with a lower target price of 65 sen on HPMT.

"Stock has tumbled by 28 per cent since the conflict. While the situation is fluid, post-sell down HPMT currently trades at an undemanding FY22/FY23 price earning (P/E) multiple of 12.2 times/11.3 times," it added.

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