It was a strong finish for SCGM in FY20 with a core profit of RM17.3m, beating our and the consensus expectations by 12% and 18%, respectively. Despite weaker topline growth (-4.1% YoY), the encouraging results were mainly driven by i) stronger gross margin from the customized packaging products, ii) lower resin cost and iii) lower interest expense. A higher DPS of 1.5sen (4QFY19: 0.3sen) was declared for the quarter, bringing the cumulative dividend to 3.3sen for the full-year. Meanwhile, we roll-over our valuations to FY22 with a higher TP of RM2.55 based on 22x FY22 EPS. We also raise our call from Trading Buy to Outperform given the rosier long-term outlook.

• 4QFY20 sales softened by 2.2% YoY to RM49.6m. Group sales dropped to RM49.6m, dragged by a decline in local market sales (-10.8% YoY), which was partly cushioned by strong export sales (+17.9% YoY). The decline in topline was mainly attributed to lower sales of non-customised food and packaging products and other non-core packaging products catered for the electronic and other sectors, in line with the Group’s strategy to focus on higher margin customized packaging products. In addition, local demand was also affected by implementation of the Movement Control Order due to the Covid-19 outbreak.

• Churning a strong profit of RM6.9m. The Group recorded a profit of RM6.9m in 4QFY20 compared to a loss of RM7.1m in 4QFY19. The strong earnings recovery was mainly due to i) a switch to high-margin customized packaging products, ii) lower resin cost and iii) tax credit due to the utilization of capital allowance and reinvestment allowance. Meanwhile, its gross profit margin surged from a loss to 13.1% for the quarter.

• Lower utilization rate during MCO period. In compliance with the directive from the Ministry of International Trade and Industry, the Group operated at 50% manpower capacity during the Movement Control Order (MCO) period and it has maximized to 100% manpower since the Conditional-MCO in end-April 2020.

• Plastic packaging product remains the primary focus. Management indicated that it will remain focused on food and beverage (F&B) plastic packaging while the medical personal protective equipment (PPE) will be its secondary market. To further lift the earnings margin for its F&B plastic packaging business, it will continue to place its efforts on highly customised F&B packaging. In the PPE segment, it has expanded its product portfolio by adding face masks to its current range of face shields with the commencement production since last month.

Source: PublicInvest Research - 30 Jun 2020