SLP Resources Berhad (SLP) reported lower core net profit of RM3.5m in 2QFY23 (-7.2% YoY) mainly due to lower revenue (-20.1% YoY) attributable to the softening demand from local and oversea markets. Results were below consensus and our expectations, accounting for 36.1% and 39.9% of full-year estimates respectively. Earnings discrepancies were mainly due to export growth continued to be hampered by sluggish global demand. We keep our estimates unchanged however, on expectations of external demand to improve gradually in the 2nd half of the year. We remain cautious on the Group’s outlook and retain our Underperform call on SLP Resources with unchanged target price of RM0.73. On a side note, SLP declared a 2nd interim dividend of 1.25sen, bringing total dividend for FY23 to 2.25sen (FY22: 2.50sen).

• 2QFY23 revenue fell 20.1% YoY to RM37.6m, attributed to weakening demand from local (-14% YoY) and oversea markets (-29.4% YoY) as export growth continued to be hampered by sluggish global demand.

• 2QFY23 headline net profit decreased by 60.6% YoY to RM3.5m due to absent of the non-recurring gain. Excluding the gain from the disposal of leasehold land amounted to RM5.1m in 2QFY22, core net profit fell 7.2% YoY. Core net profit margin for 2QFY23 improved to 9.3% (2QFY22: 8.0%, 1QFY23: 7.5%) following the Group stepped up efforts to contain costs by minimizing unnecessary overtime shifts among its staff.

• Outlook for the flexible plastic packaging industry continues to be weighed by weak global demand. While raw material and logistic costs have eased, over supply and weak external demand remain prevalent due to the slowing global economic activities and lack of market catalyst to spur demand growth. Nonetheless, the Group remains focus on its product range differentiation to sustain market shares and continue to strengthen its financial fundamental to weather the potential impact from the current global economic challenges. The Group’s premium flexible packaging products for the circular economy is gaining traction however contribution from this new product to its bottom line remains negligible at this juncture.

Source: PublicInvest Research - 7 Aug 2023