Summary

• SLP Resources Bhd’s (SLP) 2QFY21 net profit climbed 14.2% YoY to RM4.7m, lifted by higher sales volume for plastic flexible packaging products and plastic resins for the local market. Revenue for the quarter rose 19.3% YoY to RM41.5m. A second interim dividend of 1.5 sen per share, payable on 7th October 2021 was declared.

• For 1HFY21, cumulative net profit rose 32.8% YoY to RM10.7m. Revenue for the period added 27.0% YoY to RM 87.6m. The reported earnings accounted to 42.6% of our forecasted net profit of RM25.2m and 49.8% of consensus forecasted net profit at RM21.5m.

• While there were zero sales recorded to European countries in 2QFY21, we opined that the trend will largely remain unchanged. Still, the growing local sales as well as from the Japanese market may provide a cushion to the aforementioned weakness. Already, the local sales rose 26.1% YoY to RM22.4m, whilst sales to Japan added 8.9% YoY to RM15.2m, both makes up to 90.5% of total revenue in 2QFY21.

• Moving forward, we believe that sales from the local and Japanese market will continue to anchor the overall sales, contributing close to 90.0% of total revenue in FY21f as the shortage of containers and high logistic charges may continue to delay export shipment to the overseas customers.

• SLP will focus on ramping up the production of kitchen and garbage bag to meet the pent-up demand as the work-from-home measures are still imposed. Also, SLP aims to undertake new products, namely medical pouches, tacky mats and door handle refills, riding on the rising healthcare awareness.

• We gather that the rise in polyethylene (PE) prices has tapered since mid-July 2021 in tandem with the movement of crude oil prices. Still, the stronger ASP will continue support margins as demand remains relatively solid. We also note that SLP maintains a lean balance sheet with zero borrowings, whilst cash position of RM73.6m in 2QFY21 translates to net cash per share of 23.2 sen (c.24.7% of share price).

Valuation & Recommendation

• Although the reported earnings came slightly below half of our forecast, we deem the figures to be in line as the current workforce restriction to 60.0% expected to be lifted by end of the year which will subsequently boost production output.

• We maintained our HOLD recommendation on SLP with an unchanged target price of RM1.03. Our target price is based on the assigned target PER of 13.0x to our FY21f EPS of 7.9 sen. At RM0.94, we note that prospective dividend yields are fairly attractive at 7.4% for FY21f and FY22f each.

• Risks to our recommendation include the volatility in the global resin prices which affect production costs and margins. Foreign exchange fluctuation risk; although net forex exposure in USD is capped to about 5.0% as raw material costs is largely offset by export sales denominated in the same currency (close to 50.0% of total export revenue).

Source: Mplus Research - 9 Aug 2021