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HPI Resources
Recommendation: HOLD
Stock Code: 7919 Bloomberg: HPI MK Price: MYR1.93 12-Month Target Price: MYR2.10 Date: July 28, 2010

Board: Main Pr i ce 30 Day Movi ng Aver age Price (MYR)

2.00

Sector: Industrial Products 1.80

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HPI 20100728 SnP 12/8/10 10:04 AM

Sector: Industrial Products 1.80

1.60
GICS: Materials/Paper Packaging 1.40

Market Value - Total: MYR102.7 mln 1.20

1.00

0.80
Summary: HPI Resources manufactures and trades a 0.60
variety of corrugated boards, carton boxes, wrapping paper 0.40
and plastic film packaging products. It also owns a paper mill
and provides lorry transportation services & vehicle repairs. Vol ume Vol ('000)
4,000

3,000
Analyst: Wee Sieng Lee, CPA 2,000

1,000
0
Jul 07 Oct 07 Dec 07 Feb 08 Apr 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09 Jun 09 Aug 09 Oct 09 Dec 09 Mar 10 May 10 Jul 10

Results Review & Earnings Outlook Recommendation & Investment Risks

 HPI Resources reported for FY10 a good set of financial results,
exceeding our expectations and market consensus. The group
reported revenue of MYR372.6 mln (+7.9% YoY) and net profit of
MYR22.8 mln (+20.4% YoY).
 The better FY10 performance was driven by increased contribution
from its higher-margin paper milling operation and improved domestic
demand for packaging products. As for segmental performance, the
group’s paper milling division recorded a strong 283.7% YoY increase
in profit before tax to MYR9.3 mln with first time full-year consolidation,
while its packaging division recorded profit before tax of MYR20.4 mln
(-2.8% YoY) partly affected by higher raw material costs, in particular
an increasing paper price.
 For 4QFY10, HPI recorded revenue of MYR101.6 mln (+31.4% YoY)
and net profit of MYR7.2 (-9.2% YoY). Despite recording higher
revenue, the group recorded lower net profit due to weaker gross
margin of 17.8% (21.0% in 4QFY09) with higher paper costs and
higher tax provision for its Cambodian subsidiary.
 We maintain our Hold recommendation with a higher 12-month target
price of MYR2.10 (previously MYR1.80) after raising our forward
projections. Although HPI reported better-than-expected FY10 results,
we remain neutral on the group as we believe the recent run-up in its
share price (+34.0% in the past month) has already reflected the
improved performance and outlook.
 We continue to use relative price-earnings (PE) valuations to derive
our 12-month target price. We have ascribed a PE multiple of 5.0x
(unchanged) to our projected FY11 EPS (unchanged). In determining
the appropriate PE multiple, we have evaluated the group’s historical
PER trading range as well as its peers’ traded PER multiples. We have
also factored in the group’s share price volatility and its vulnerability to
higher raw material costs, in particular increasing paper costs.
 HPI has recommended a first and final dividend of 5.0 sen tax exempt
for FY10 (FY09: 2.5 sen tax exempt).
The group planned to spend MYR10.2 mln to expand its production

HPI Resources
Recommendation: HOLD
Stock Code: 7919 Bloomberg: HPI MK Price: MYR1.93 12-Month Target Price: MYR2.10 Date: July 28, 2010

Quarterly Performance
FY May. / MYR mln 4Q10 4Q09 % Change
Reported Revenue 101.6 77.3 31.4
Reported Operating Profit 9.8 8.6 13.5
Depreciation & Amortization -3.0 -1.7 74.6
Net Interest Income / (Expense) -0.9 -0.9 8.0
Reported Pre-tax Profit 8.9 8.2 8.7
Reported Net Profit 7.2 8.0 -9.2
Reported Operating Margin (%) 9.7 11.2 -
Reported Pre-tax Margin (%) 8.8 10.6 -
Reported Net Margin (%) 7.1 10.3 -
Source: Company data

Profit & Loss

FY May. / MYR mln 2009 2010 2011E 2012E
Reported Revenue 345.4 372.6 396.8 411.1
Reported Operating Profit 28.9 31.5 32.1 33.2

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Reported Operating Profit 28.9 31.5 32.1 33.2

Depreciation & Amortization -9.8 -11.7 -12.2 -11.9
Net Interest Income / (Expense) -6.6 -4.6 -5.8 -6.3
Reported Pre-tax Profit 22.8 27.0 26.3 27.0
Effective Tax Rate (%) 16.3 14.5 15.0 15.0
Reported Net Profit 19.0 22.8 22.2 22.7
Reported Operating Margin (%) 8.4 8.5 8.1 8.1
Reported Pre-tax Margin (%) 6.6 7.2 6.6 6.6
Reported Net Margin (%) 5.5 6.1 5.6 5.5
Source: Company data, S&P Equity Research

Required Disclosures

Standard & Poor’s Equity Research Services
Standard & Poor’s Equity Research Services U.S. includes Standard & Poor’s
Investment Advisory Services LLC; Standard & Poor’s Equity Research Services
Europe includes Standard & Poor’s LLC- London; Standard & Poor’s Equity
Research Services Asia includes Standard & Poor’s LLC’s offices in Hong Kong
and Singapore, Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’s
Information Services (Australia) Pty Ltd.
Glossary
Strong Buy: Total return is expected to outperform the total return of the KLCI or
KL Emas Index respectively, by a wide margin over the coming 12 months, with
shares rising in price on an absolute basis.
Buy: Total return is expected to outperform the total return of the KLCI or KL Emas
Index respectively, over the coming 12 months, with shares rising in price on an
absolute basis.
Hold: Total return is expected to closely approximate the total return of the KLCI or
KL Emas Index respectively, over the coming 12 months with shares generally
rising in price on an absolute basis.
Sell: Total return is expected to underperform the total return of the KLCI or KL
Emas Index respectively, over the coming 12 months and share price is not
anticipated to show a gain.
Strong Sell: Total return is expected to underperform the total return of the KLCI or
KL Emas Index respectively, over the coming 12 months by a wide margin, with
shares falling in price on an absolute basis.
S&P 12 Month Target Price – The S&P equity analyst’s projection of the market
price a given security will command 12 months hence, based on a combination of
intrinsic, relative, and private market valuation metrics.
Shariah-compliant stock - As defined by the Shariah Advisory Council of
Malaysia’s Securities Commission
Standard & Poor's and its affiliates provide a wide range of services to, or relating
to, many organizations, including issuers of securities, investment advisers, broker-
dealers, investment banks, other financial institutions and financial intermediaries,
and accordingly may receive fees or other economic benefits from those
organizations, including organizations whose securities or services they may
recommend, rate, include in model portfolios, evaluate or otherwise address.
CMDF-Bursa Research Scheme (“ CBRS” )
This report has been prepared by S&PM for purposes of CBRS administered by
Bursa Malaysia Berhad, independent from any influence from CBRS or the subject
company. S&P will receive total compensation of RM15,000 each year for each
company covered by it under CBRS. For more information about CBRS, please
visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/
Disclaimers
This material is based upon information that we consider to be reliable, but neither
S&P nor its affiliates warrant its completeness, accuracy or adequacy and it should
not be relied upon as such. With respect to reports issued to clients in Japan and in
the case of inconsistencies between the English and Japanese version of a report,
the English version prevails. With respect to reports issued to clients in Germany
and in the case of inconsistencies between the English and German version of a
report, the English version prevails. Neither S&P nor its affiliates guarantee the
accuracy of the translation. Assumptions, opinions and estimates constitute our
judgment as of the date of this material and are subject to change without notice.
Neither S&P nor its affiliates are responsible for any errors or omissions or for
results obtained from the use of this information. Past performance is not
necessarily indicative of future results.
This material is not intended as an offer or solicitation for the purchase or sale of
any security or other financial instrument. Securities, financial instruments or
strategies mentioned herein may not be suitable for all investors. Any opinions
expressed herein are given in good faith, are subject to change without notice, and
are only correct as of the stated date of their issue. Prices, values, or income from
any securities or investments mentioned in this report may fall against the interests

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HPI 20100728 SnP
Required Disclosures
All of the views expressed in this research report accurately reflect the
research analyst's personal views regarding any and all of the subject
securities or issuers. No part of analyst compensation was, is, or will be,
directly or indirectly, related to the specific recommendations or views
expressed in this research report.
Additional information is available upon request.
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12/8/10 10:04 AM
any securities or investments mentioned in this report may fall against the interests
of the investor and the investor may get back less than the amount invested. Where
an investment is described as being likely to yield income, please note that the
amount of income that the investor will receive from such an investment may
fluctuate. Where an investment or security is denominated in a different currency to
the investor’s currency of reference, changes in rates of exchange may have an
adverse effect on the value, price or income of or from that investment to the
investor. The information contained in this report does not constitute advice on the
tax consequences of making any particular investment decision. This material is not
intended for any specific investor and does not take into account your particular
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