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HPMT 

 

PRECISION MACHINING COMPANY

HOW DOES IT COMPARE TO UWC, WONG & NOTION?

 

OWN BRAND & PRIVATE LABELS OF CUTTING TOOLS, DISTRIBUTED GLOBALLY

HPMT manufactures and distributes cutting tools globally – End mills, drills and special tools. These products are made from tungsten carbide under the HPMT brand or private labels. These cutting tools cutting tools are part of an engineering function that involves any form of metal working process.

HPMT has more than 40 years of cutting tool trading experience and 20 years of cutting tool manufacturing experience, supported by strong in-house R&D capabilities.

HPMT has global distribution network in more than 30 countries, with particular focus in Europe and Asia. 4 subsidiaries based in Malaysia, Germany, Hong Kong and China. Top 5 customers include listed and non-listed companies from Germany, Denmark, Italy and Czech Republic. Business relationships have been established for more than 8 years.

Germany, Denmark houses many world's leading engineering and manufacture companies - Mercedez Benz, BMW, Bang & Olufsen, etc.

 

EVERGREEN DEMAND FROM MULTIPLE INDUSTRIES – MINIMALLY IMPACTED BY COVID-19

Primarily used in manufacturing processes, cutting tools are used to produce various products in a wide range of industries, such as semi-conductor, medical, consumer electronics automotive, and mould and die. Most of these industries are growing despite global COVID-19.

HPMT’s capacities growing healthily. Based on IPO prospectus, from 2015 to 2018, HPMT’s annual capacity growth rates of all 3 product categories (end mills, drills and special tools) are between 5.7% and 10.0% - healthy growth. Recent quarters fluctuate slightly, though.

 

FINANCIAL PERFOMANCE

Supported by inhouse R&D capabilities and experience, HPMT’s has a net profit margin of 10%. Not particularly amazing, but not bad either.  ROE of 6.16% is decent. HPMT is a not a net cash company. That said, it has a healthy current ratio of 5.16x.

 

BUSINESS RISKS

HPMT may experience unforeseen reduction of business orders and volumes. HPMT may underperform and impact its revenue, profits and profit margins. HPMT’s net tangible assets may shrink in value due to impairments.

 

HPMT IS A PRECISION MACHINING COMPANY. ‘PRECISION MACHINING’ IS THE KEY WORD HERE.

PRECISION MACHINING is a niche industry that sounds ‘unsexy’, but means a lot to today’s world.

Based on research, the global precision parts market is expected to grow at a CAGR of around 12% during the period 2018-2024.

Physical products (electrical appliances, electronic gadgets, automobiles, medical equipment, etc) today are much finer and high demand more precision in manufacture and machining.

The development and usage of new substrate materials, the growing prominence of Asian manufacturing, the increased automation expenditure, and advancements in machinery are some of the prominent factors expected to contribute significantly in the growth of the precision parts market.

We think HPMT stands a chance benefit from the trend.

 

AT LEAST 10 SHARE BUYBACKS IN 2.5 MONTHS

HPMT directors have been buying back own shares since Aug 2020. Buying amount is not huge, but many times - 10 times at least, in 2.5 months.

Based on monitoring on management team, we believe they are serious and down-to-earth in doing their businesses. They are confident in their own companies, hence the share buybacks. We believe management sees something Mr. Market doesn’t.

 

PEER-BENCHMARKING, HPMT APPEAR AS DISCOUNT & VALUE BUY

Precision Metal and Precision Machining related companies in KLSE are UWC, WONG, NOTION and HPMT.

As of October 16, share prices of UWC and WONG, are performing.

As precision metal and precision machining companies largely depend on their tangible assets (they are not digital companies), NTA is a good valuation-indicator.

UWC AND NOTION’s share prices are all traded above NTAs.

  • UWC is traded 1,510% above NTA (Yes, 1,510%)
  • WONG is traded 63% above NTA.
    NOTION is traded 41% above NTA.
  • HPMT is traded at NTA, based on a share price of RM0.37.

HPMT has an NTA of 37 sen. At a share price of RM0.37, HPMT is only traded right at its NTA. Investors are getting HPMT’s net tangible assets for free.  

We do not know how much Mr. Market will value HPMT.

That said, being traded at a share price equivalent to NTA, we see HPMT as a discount and value buy – even though it has gone up from it’s lower-range consolidation channel between 31 and 35 sen. 

 

TECHNICAL OBSERVATION

HPMT has been consolidating between RM0.31 to RM 0.35 in the past 6 months.

This week, HPMT had a breakout from the consolidation channel.

Going forward, how would HPMT’s share price move?

Let's let Mr. Market decide.

 

DISCLAIMER

Our study notes are for sharing purpose only. We could be inaccurate. There is no buy/sell recommendation.

 

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https://klse.i3investor.com/blogs/jomnterry/2020-10-16-story-h1534675510-HPMT_A_PRECISION_MACHINING_PLAYER.jsp

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