Exchange: HKSE | Sector: Industrials | Industry: Manufacturing Metal Fabrication
Q3 2024
Published: Sep 30, 2024
Earnings Highlights
Revenue of $420.73M up 9% year-over-year
EPS of $0.01 increased by 133.3% from previous year
Gross margin of 7.6%
Net income of 7.00M
"N/A" - N/A
Heng Hup Holdings Limited (1891.HK) QQ3 2024 Results Analysis: Revenue Growth with Margin Pressure in a Cyclical Scrap Metal Market
Executive Summary
Heng Hup Holdings Limited delivered a solid QQ3 2024 quarter, underscoring resilience in a cyclical scrap metal trading and processing business. Revenue reached MYR 420.73 million, up roughly 9% year-over-year, supported by volume gains in the scrap ferrous metals marketplace. Despite topline gains, gross margin compressed to 7.63% (from 6.15% in prior years’ quarters), reflecting commodity price volatility and input-cost dynamics, while operating margin remained modest at 2.26% and net margin around 1.66%. EBITDA was MYR 12.14 million, and net income stood at MYR 7.00 million, translating to earnings per share of MYR 0.007. The company generated robust operating cash flow of MYR 20.69 million and free cash flow of MYR 17.59 million, supporting a stronger liquidity posture with a current ratio of 2.31 and a net debt position of MYR 44.47 million (net debt/EBITDA ~ 3.7x).
From a balance sheet perspective, Heng Hup maintains a comfortable asset base (Total assets MYR 380.35 million) and solid equity (MYR 238.44 million). Cash and cash equivalents plus short-term investments totaled MYR 51.32 million, while total debt stood at MYR 89.53 million, yielding a cautious but improving leverage profile. The working capital cycle improved with a CCC of ~41 days, driven by a positive change in working capital of MYR 16.03 million during the quarter.
Looking ahead, management guidance for QQ4 2024 is not explicitly quantified in the available data; the narrative suggests continued focus on cost discipline and cash generation, with performance sensitive to steel scrap price cycles and input cost movements. The near-term risk remains tied to commodity price volatility and cyclicality, but there are potential upside avenues from efficiency gains, financing flexibility, and any expansion of scrap processing and related ecommerce waste-commodity activities. Overall, Heng Hup appears financially stable with modest earnings leverage to commodity cycles and meaningful free cash flow generation that supports optionality for capital deployment.
Key Performance Indicators
Revenue
420.73M
QoQ: -2.75% | YoY:8.97%
Gross Profit
32.08M
7.63% margin
QoQ: 3.83% | YoY:35.01%
Operating Income
9.49M
QoQ: 0.48% | YoY:57.93%
Net Income
7.00M
QoQ: 22.28% | YoY:130.09%
EPS
0.01
QoQ: 22.81% | YoY:133.33%
Revenue Trend
Margin Analysis
Key Insights
Revenue: MYR 420.73 million; YoY +8.97%; QoQ -2.75% (Q2 2024: MYR 432.60 million). The revenue growth reflects higher volume of scrap metal traded and processed, partially offset by seasonal demand and pricing dynamics.
Gross Profit: MYR 32.08 million; YoY +35.01%; QoQ +3.83%; Gross Margin 7.63% (vs 6.15% in prior-year Q3 footprint). Margin expansion on a YoY basis indicates better cost absorption or mix, though margin remains relatively thin in a commodity-driven business.
Operating Income: MYR 9.49 million; YoY +57.93%; QoQ +0.48%; Operating Margin 2.26%. Efficiency gains partially offset higher cost of revenue in certain periods.
Net Income: MYR 7.00 million; YoY +130.09%; QoQ +22.28%; Net Margin 1.66%. The uplift reflects higher operating profitability and contained financing/other expense impact.
Summary of key QQ3 2024 metrics with YoY and QoQ context:
- Revenue: MYR 420.73 million; YoY +8.97%; QoQ -2.75% (Q2 2024: MYR 432.60 million). The revenue growth reflects higher volume of scrap metal traded and processed, partially offset by seasonal demand and pricing dynamics.
- Gross Profit: MYR 32.08 million; YoY +35.01%; QoQ +3.83%; Gross Margin 7.63% (vs 6.15% in prior-year Q3 footprint). Margin expansion on a YoY basis indicates better cost absorption or mix, though margin remains relatively thin in a commodity-driven business.
- Operating Income: MYR 9.49 million; YoY +57.93%; QoQ +0.48%; Operating Margin 2.26%. Efficiency gains partially offset higher cost of revenue in certain periods.
- Net Income: MYR 7.00 million; YoY +130.09%; QoQ +22.28%; Net Margin 1.66%. The uplift reflects higher operating profitability and contained financing/other expense impact.
- EPS: MYR 0.007 (basic and diluted); YoY +133.33%; QoQ +22.81%; Weighted avg shares 1.0 billion.
- EBITDA: MYR 12.14 million; EBITDA margin 2.89%; EBITDARatio 0.0289.
- Liquidity: Current ratio 2.31; Quick ratio 1.87; Cash ratio 0.36. Strong short-term liquidity supports working capital needs in a cyclical business.
- Cash Flow: Net cash from operating activities MYR 20.69 million; Capex (PPE) MYR -3.11 million; Free Cash Flow MYR 17.59 million. Free cash flow sufficiency supports debt service and potential value-enhancing actions.
- Balance Sheet: Total assets MYR 380.35 million; Total liabilities MYR 145.69 million; Shareholders’ equity MYR 238.44 million. Net debt MYR 44.47 million (Total debt MYR 89.53 million; Cash & equivalents ~MYR 45.06 million). Leverage remains moderate with net debt/EBITDA around 3.7x.
- Efficiency Metrics: Receivables turnover ~2.55x; Inventory turnover ~6.94x; Payables turnover ~12.39x; CCC ~41 days. The company exhibits prudent working capital management against the backdrop of cyclical commodity markets.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
420.73M
8.97%
-2.75%
Gross Profit
32.08M
35.01%
3.83%
Operating Income
9.49M
57.93%
0.48%
Net Income
7.00M
130.09%
22.28%
EPS
0.01
133.33%
22.81%
Key Financial Ratios
currentRatio
2.31
grossProfitMargin
7.63%
operatingProfitMargin
2.26%
netProfitMargin
1.66%
returnOnAssets
1.84%
returnOnEquity
2.94%
debtEquityRatio
0.38
priceToBookRatio
0.2
priceEarningsRatio
1.7
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Transcript availability for QQ3 2024 earnings call is not provided in the dataset. As a result, there are no management quotes or thematic guidance to extract from an earnings call transcript. Investors should rely on the disclosed financials and any subsequent communications from the company for management tone and strategic commentary.
N/A
— N/A
N/A
— N/A
Forward Guidance
Assessment of future outlook based on available data and industry dynamics:
- No formal QQ4 2024 guidance was published in the provided information. Management commentary historically emphasizes cost control and cash generation as core priorities in a cyclical metal recycling market.
- Revenue trajectory is sensitive to scrap metal price cycles, processing capacity utilization, and stainless/ferrous input costs. Sustained volume growth could support topline expansion, while price volatility may compress gross margins if input costs rise sharply.
- Potential catalysts include further expansion of scrap processing capabilities, enhanced value-add through re-rolling or downstream trading, and improvements in working capital efficiency. Any acceleration in e-commerce waste-commodity initiatives could broaden the company's product reach and margin mix.
- Key monitorables: steel scrap price trends, local/regional steel demand, changes in recycling regulation, capital expenditure cadence for capacity expansion, and currency/commodity price exposure (MYR sensitivity versus USD and other currencies).
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
1891.HK Focus
7.63%
2.26%
2.94%
1.70%
1917.HK
22.90%
-13.60%
-2.90%
-23.77%
1960.HK
1.01%
-12.40%
-10.20%
-3.47%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Medium-term view: Heng Hup is financially stable with meaningful free cash flow that can support selective growth initiatives or debt reduction. The stock appears inexpensive on earnings and asset-based metrics (P/E ~1.7x, P/B ~0.20x), reflecting cyclical risk and thin margins. Key catalysts include capacity expansion and enhanced value-added processing that could lift EBITDA margins, along with disciplined capital management to improve returns on equity. Risks center on commodity cycles and regulatory shifts; investors should monitor scrap price trends, steel production schedules, and the company’s progress in scaling its processing and ecommerce initiatives. Overall, Heng Hup offers a modest-risk, cash-generative profile with potential upside tied to operational efficiencies and market recovery in steel demand.
Key Investment Factors
Growth Potential
Possible upside from increasing recycling capacity and downstream processing, potential vertical integration in scrap-to-supplied steel ecosystem, and expansion of waste-commodity ecommerce activities. Revenue growth can be supported by higher scrap intake and improved product mix, with a target to sustain mid-single-digit revenue growth given cyclicality.
Profitability Risk
Cylical commodity environment exposes Heng Hup to fluctuations in scrap prices and steel demand. Margin pressure can arise from input cost volatility and competitive pressure in the scrap market. Moderate leverage (~3.7x net debt/EBITDA) leaves limited cushion during downturns. Dependence on regional steel mills and metallic trade cycles introduces concentration risk; regulatory changes in waste processing and import/export controls could impact operations.
Financial Position
Solid liquidity with current ratio of 2.31 and positive free cash flow of MYR 17.59 million in QQ3 2024. Net debt remains modest at MYR 44.47 million, providing room for selective capex or acquisitions. Low to moderate ROE/ROA metrics reflect a capital-light, commodity-driven business with stable cash generation, but also limited earnings leverage at current margins.
SWOT Analysis
Strengths
Solid liquidity profile with strong current ratio (2.31) and positive free cash flow (MYR 17.59m) in QQ3 2024.
Positive working capital dynamics and cash flow generation support debt service and potential capital deployment.
Diversified scrap trading and processing operations with exposure to both ferrous metal trading and value-added activities.
Weaknesses
Gross margin remains relatively thin at 7.63%, reflecting the commodity-driven nature and price volatility of scrap metal.
Moderate earnings leverage; net margin ~1.66% indicates sensitivity to input costs and cyclical pricing.
Leverage is present (net debt to EBITDA ~3.7x), which could constrain aggressive capital allocation in downturns.
Opportunities
Expansion of scrap processing and rerolling capabilities to improve value capture and margin.
Growth of ecommerce and ancillary waste-commodity platforms to broaden revenue sources.
Potential volume growth from regional demand in Malaysia and Southeast Asia as steel mills require scrap supply and recycling services.
Threats
Commodity price volatility and cyclicality in the steel and scrap markets.