The Group reported a net profit of RM46.1m (+5.8% YoY, +40.1% QoQ) for 3QFY22, benefitting from a seasonally-strong quarter and continued strength in its margins, while also seeing operations return to normalcy post-movement restrictions. Cumulative 9MFY22 net profit of RM118.6m (+21.5% YoY) is slightly ahead of our expectations at 80% of full-year estimates, though within consensus at 75%. The Group remains poised for a multi-year growth spurt, underpinned by the production of various new models for a key customer in the coming months, in addition to the potential securing of new orders. We trim FY23 estimates by 9.5% however as we take a more conservative view to account for potential delays in line commencements, though we also highlight the scope for earnings upside in light of the Group’s on-going expansion plans and it reaping further benefits from the vertical integration initiatives. We affirm our Outperform call on SKP with a slightly lowered PE-derived target price of RM2.41 (RM2.65 previously).

• 3QFY22 performance. Revenue of RM672.5m (-5.7% YoY, +21.4% QoQ) was sequentially stronger owing to a resumption in operating capacity post-movement restriction, though also typically a stronger quarter seasonally. Net margins remained healthy at 6.8% (2Q: 7.2%) as the Group continues to reap the benefits of its vertical integration initiatives. With the Group now back running at 100% manpower capacity, the commencement of new product lines in the coming quarters are expected to lead to notably stronger earnings.

• Prospects are exciting as the Group continues to expand capacity in anticipation of securing new orders, which management has indicated receiving enquiries for from both existing and potential new customers. To-date (up to December 2021), the Group has spent RM14.2m for a 6.4- acre plot of land, with construction of a new factory building commencing recently in January 2022. Purchase of a separate 7.9-acre plot for RM19.9m is nearing completion. In total, the Group has an approved and contracted for capital expenditure of RM79.1m, which has (historically) led to the securing of new order flows.
  We have been made to understand that the Group has been able to mitigate issues with regard to supply chain disruptions, with the situation remaining very much under control. The Group will also continue to expand its Printed Circuit Board Assembly (PCBA), injection molding and engineering capabilities to cater to a widened product portfolio.

Source: PublicInvest Research - 28 Feb 2022