SLP Resources Berhad (SLP) reported lower net profit of RM2.3m in 4QFY22 (- 42.3% YoY, +54.0% QoQ) despite a marginally higher revenue. Excluding gain of RM5.1m from the disposal of leasehold land in 2QFY22, this brings full-year FY22 core net profit to RM15.5m. Results were below consensus and our expectations, accounting for 84% and 71% of our and consensus full-year estimates respectively. Earnings discrepancies were mainly attributed to weakened demand, escalating operating costs and labour shortage issue. We keep our estimates unchanged however, on expectations of stronger quarters ahead underpinned by gradual improvement of external demands, especially from Japan, Australia and New Zealand and anticipate a better business operating environment towards the 2nd half of FY2023 following China’s reopening. We maintain our Neutral call with P/E based TP revised to RM0.96 (previously RM0.90) as we roll over valuation year to FY24F. On a side note, SLP declared a final dividend of 1.5 sen, bringing total dividend for FY22 to 5.5sen (FY21: 5.5sen).

• 4QFY22 revenue marginally increased by 1.5% YoY to RM45.9m, attributed to improved demand from domestic sales (+8.6% YoY) however this was somewhat offset by lower demand from Japan market (-15.8% YoY).

• 4QFY22 core net profit decreased considerably by 42.3% YoY to RM2.3m despite higher revenue, this was mainly due to surge in operating costs, labour shortage issues led to lower capacity utilisation rate and unfavourable foreign exchange movement. Core net profit margin fell from 8.7% to 4.9% YoY.

• Outlook. We expect margin compression to persist in 1H23 on weak demand and elevated operating cost, exacerbated by upward adjustment in the electricity tariff via Cost Pass-Through (ICPT) mechanism for 6 months period from Jan to Jun of 2023. On the positive note, the Group is focusing on managing the increase in operating costs and labour shortage. The Group has successfully achieved its workforce recruitment target in early 2023. Along with the Group’s continuous invest and transform its production processes with more automation and digitalization, we expect to see improvement in production and plant utilisation rate. Additionally, there has been a gradual improvement in external demands, especially from Japan. With China’s reopening recently, supply-demand situation is expected to improve further. Thus we anticipate a better business operating environment towards the 2nd

half of 2023.

Source: PublicInvest Research - 27 Feb 2023