Summary

• SLP Resources Bhd’s (SLP) long-term prospects remain lackluster owing to the absence of fresh leads, while we expect shipments to European countries to remain out of the picture. While commitment to adopt automation and digitalisation process are in progress, improvement in margins are expected to be negated by the upward revision of electricity tariff under the Imbalance Cost Pass Through (ICPT) mechanism over a 6-month period from January 2023 till June 2023 and higher labour cost.

• We remain cautious in view of the on-going geopolitical tension between Ukraine and Russia as well as the recovery in supply from European countries following the fall in gas prices. Given that demand may stabilise, we expect SLP’s plant utilisation rate to come by at c.60.0% for FY23f (from c.50.0% in F22) with the group shifting their focus onto the production and sales of higher margins products.

• Moving forward, the key overseas markets such as Japan, Australia and New Zealand are expected to contribute to the revenue, given that demand for kitchen bags, kangaroo pouch and mono film remained well received. Still, local sales which make up to 59.2% of total revenue in FY22 are expected to remain flat for FY23f.

• We are ceasing coverage on SLP due to the lack of both retail and institutional interest as well as reallocation of internal resources. We expect trading activities to remain muted with 3-months average trading volume slipping to 34,823, representing only 1.1% of total enlarged share issued. Nevertheless, prospective dividend yields at 6.6% and 7.1% for FY23f and FY24f respectively is fairly attractive for longer term investment horizon.

• Our last recommendation on SLP was HOLD with a fair value at RM0.94. The fair value is derived from ascribing a target PER of 15.0x to its FY22f EPS of 6.2 sen.

Source: Mplus Research - 25 Apr 2023