KUALA LUMPUR: There is expected to be short-term downside on Hup Seng Industries Bhd's share price following health and safety concerns expressed by the Hong Kong Consumer Council (HKCC) over the confectionery manufacturer's crackers, says TA Securities Research.
As at 9.30am, Hup Seng shares were trading two sen or 2.2% lower at 89 sen apiece with over three million units exchanging hands.
Since news that the Malaysian government was looking into these health concerns broke on Friday, the counter has lost about 5% of its value.
However, TA Securities Research said the current headwinds are not expected to materially derail the group's growth trajectory.
Conversely, it expects any further decline below 87 sen a share to be an attractive accumulation opportunity for long-term dividend seeking investors.
In its analysis, TA Securities noted that Hup Seng has reiterated that its crackers manufactured and marketed in Malaysia are fit for human consumption and the group is extending its cooperation to the authorities in their investigation.
It added that Hup Seng holds Hazard Analysis Crticial Control Point (HACCP) and Good Manufacturing Practice (GMP) certifications through Malaysia's Health Ministry.
It noted also that HKCC published a study on cookies and pastries back in early 2019 with similar concerns raised over their impact on health and safety.
"Although we do not have full clarity over the follow-through events after the 2019 research finding, there was no available news in the internet stating that all the cookies and pastries were withdrawn from market shelf following the 2019 research, and sales of cookies alongside pastries are still available in Hong Kong today.
"Furthermore, some of the other food products which were previously reported to contain carcinogenic components also include crispy snacks, dried spices, infant formula, canned fish, margarine and cooking oil," said TA Securities.
Drawing a parallel with PepsiCo Inc, TA Securities said even products that are generally perceived to be less healthy can grow steadily overtime.
"It is of no secret that crispy snacks are consumed primarily for leisure instead of nutritional purpose and HKCC has also once published that crispy snacks on Hong Kong market contain carcinogenic contaminants.
"Nevertheless, Frito-Lays North America, an operating segment of PepsiCo that focuses on manufacturing and selling branded snack foods in North America had grown at a CAGR of 5.5% during 2018-2020, outperforming PepsiCo’s CAGR of 4.3%," it said.
The research house said Hup Seng has a healthy net cash position of RM58mil as of 2QFY21 and projects a distribution of five sen and six sen per share in FY22 and FY23 respectively.
It maintained its "sell" call on Hup Seng at this juncture with an unchanged DDM-driven target price of 98 sen a share.