Summary

• SLP Resources Bhd’s (SLP) 2QFY22 core net profit fell 18.8% YoY to RM3.8m, impacted by the higher costs of production that offset the better sales. Revenue for the quarter, however, rose 13.3% YoY to RM47.1m. A second interim dividend of 1.5 sen per share, payable on 6th October 2022 was declared.

• For 1HFY22, cumulative core net profit fell 22.3% YoY to RM8.3m. The reported core earnings came slightly above expectations, making up to 55.8% of our forecasted core net profit of RM14.9m and 52.6% of consensus forecasted net profit at RM15.8m.

• In 2QFY22, local sales at RM28.6m remains as the biggest contributor to overall revenue, attributed 60.7% of total revenue, followed by sales to Japan at RM13.3m (28.3% of total revenue), Australia at RM1.9m (4.1%) and other countries at RM3.2m (6.9%). We reckon that Malaysia will remain as the key contributor to the group’s overall revenue in subsequent quarters, mainly due to the unfavourable freight costs.

• Local sales recovery will be anchored by the improvement in economic activities towards the year-end festive seasons. At the same time, SLP remains active in the adoption of automation and digitalisation process in bid tackle the shortage of workers issue and improve production efficiency. Nevertheless, the challenging operations scenario may keep margins in check in subsequent quarters ahead.

• With the on-going supply chain disruption, we think that the export market may remain dour over time, with the group may take a longer approach to beef up their export sales to pre-pandemic levels at about 60% of total revenue. For now, SLP will continue to place greater emphasis on their existing local and the Japanese markets.

• Although resin prices have softened since April 2022, the elevated Brent oil prices above the USD 90/bbl may keep resin prices above pre-pandemic levels. For now, we expect resin prices to stay above USD1,200/MT in 2022 (current prices around USD1,300/MT).

Source: Mplus Research - 8 Aug 2022