Summary

• SLP Resources Bhd’s (SLP) 3QFY21 net profit fell 30.3% YoY to RM3.1m, dragged down by the production disruption owing to the restriction of 60.0% workforce, coupled with the temporary plant closure on 10th September 2021 to 16th September 2021. Revenue for the quarter declined 2.6% YoY to RM36.2m. A third interim dividend of 1.5 sen per share, payable on 6th January 2022 was declared.

• For 9MFY21, cumulative net profit grew 10.5% YoY to RM13.8m. Revenue for the period improved 16.7% YoY to RM123.7m. The reported earnings came below expectations, making up to 54.8% of our forecasted net profit of RM25.2m and 64.1% of consensus forecasted net profit at RM21.5m.

• Expectedly, local sales at RM21.8m continue to dominate, accounting to 60.2% of total revenue in 3QFY21, followed by sales to Japan at RM11.3m (31.1% of total sales for the quarter), while European markets continue to remain dormant. We opine that the trend for the remainder of the year to remain unchanged.

• We believe that recovery in sales to kick in from 4QFY21 as the Kedah state has moved into the Phase 3 under the National Recovery Plan (NRP) from 1st October 2021. Adding onto the optimism is SLP was granted full workforce from the Ministry of International Trade and Industry (MITI) as all employees has already been fully vaccinated.

• Moving forward, SLP will attempt to fulfil their backlog orders and deliveries and continue to strengthen their position in the personal care and hygiene industry. Still, we opine that the recovery may be uneven, premised to the on-going logistical issue and shortage of workers that continues to pose operational problem for SLP.

• We gather that the rise in polyethylene (PE) prices has tapered since mid-October 2021, owing to the improvement in supply and gradual normalising in demand. Stockpiling activities since the start of the year appears to be at tail end with traders now attempt to unload their positions. Nevertheless, we reckon that prices remain well elevated, above the pre-Covid19 levels.

Valuation & Recommendation

• Given that the reported earnings came below our expectations, we trimmed our earnings forecast by 16.7% and 8.0% to RM21.0m and RM23.6m for FY21f and FY22f respectively, taking into account of the slowdown in sales and production.

• We maintained our HOLD recommendation on SLP with a lower target price of RM0.96 (from RM1.05) after rolling over our valuation metrics to FY22f. Our target price is based on the assigned target PER of 13.0x to our FY22f EPS of 7.5 sen. At RM0.94, we note that prospective dividend yields are fairly attractive at 5.9% and 6.4% for FY21f and FY22f respectively.

• 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 - 8 Nov 2021