• After a difficult period, things are getting back on track for electronic manufacturing services sector (EMS) which has seen production returning to the norm. We like SKP Resources for its position is one of the leading players in the EMS industry in Malaysia.

• At RM1.38, SKPRES is trading at forward PE of 13.9x and 11.6x for FY21 and FY22 respectively; below the five-year historical average of 17.3x; suggesting potential upside. Technically, share price is potentially forming another wave of recovery following the bullish candlestick formation yesterday, targeting RM1.52-RM1.59.

Trading Catalyst

• We like SKP Resources Bhd (SKP) for the position as one of the leading players in the EMS industry in Malaysia backed by the 1) strong clientele base and 2) resumption of production to normalcy. We note that the recent slump in 4QFY20 bottom line was largely impacted production disruption arising from Covid-19.

• Moving forward, we believe that a recovery will materialise in the subsequent quarters as production returns to normalcy, whilst demand may shift to higher gear. At current price of RM1.38, SKP is trading at forward PE of 13.9x and 11.6x for FY21 and FY22 respectively which is below the five-year historical average of 17.3x; suggesting potential upside in our view. Meanwhile, SKP is also backed by a healthy balance sheet with a net cash position of RM41.3m; the only net cash position company amongst the three largest homegrown EMS player (VS, ATAIMS and SKPRES) listed on Bursa Malaysia.

Technical Outlook

• Technically, share price has sank more than 50% from the recent peak, hitting the bottom in mid-March 2020 before staging a technical rebound. After approximately two months of consolidation, price is now on the next wave of recovery. Price has formed a bullish candlestick formation yesterday; implying another wave of recovery for price attempting to breakout above the RM1.40 to re-test the RM1.52-RM1.59 targets with long term target at RM1.73. Support is pegged at RM1.28 and cut loss is located at RM1.27.

Source: Mplus Research - 24 Jun 2020