SKP Resources Bhd

On the mend

• One of the largest electronic manufacturing services (EMS) providers on Malaysia with over 40 years of experience in the industry, which its key clients include MNCs like Sharp, Flextronics, Dyson, Sony, Fujitsu and Panasonic.

• At RM1.44, price is trading at prospective PE of 14.5x and 12.1x for FY21f and FY22f respectively which is below the 2Y historical average at 16.8x, suggesting some upsides in our view. Technically, a flag-formation breakout above RM1.47 may power price to re-test RM1.59-RM1.67 with long term target at RM1.80.

Trading Catalyst

• SKP Resources Bhd (SKP) is one of the largest electronic manufacturing services (EMS) providers on Malaysia with over 40 years of experience in the industry. The group is supported by over 2,500 workforce and more than 250 injection moulding machines on more than 1.0m sqf of manufacturing facilities in Johor Bahru. Some of the group’s key clients include multinational companies like Sharp, Flextronics, Dyson, Sony, Fujitsu and Panasonic.

• After delivering the weakest quarterly performance since 3QFY14 with net profit only came in at RM7.0m in 4QFY20, we believe that a recovery is largely in place in subsequent quarters owing to the resumption in work since 1st May 2020 that will improve production capacity, coupled with the newly production of battery packs that will improve margins, going forward.

• At RM1.44, price is trading at prospective PE of 14.5x and 12.1x for FY21f and FY22f respectively (below 2Y historical average of 16.8x), suggesting some upsides in our view. We also note that SKP Resources is operating in a positive cash flow over the past 4 years and is supported by a net cash position of RM40.3m in 4QFY20.

Technical Outlook

• Technically, the uptrend intact formation was established since end-June 2020. Price has staged a mild pullback from the recent peak, attempting to find stability at around the daily EMA20 level. A potential flag-formation breakout above RM1.47 may power price to re-test RM1.59-1.67 with long term target at RM1.80. Support is pegged at RM1.36 and cut loss is located at RM1.35.

Source: Mplus Research - 17 Aug 2020