SLP Resources Berhad (SLP) reported lower net profit of RM2.7m in 3QFY23 (- 46.0% YoY) mainly due to lower revenue (-11.8% YoY) and higher production cost. Results were below our and consensus expectations, accounting for 56.2% and 50.9% of full-year estimates respectively. Earnings discrepancies were mainly due to weaker-than-expected demand from its export markets. We keep our estimates unchanged however, on expectations of demand to improve in coming quarters driven by restocking activities. Nevertheless, a more sustain recovery will depends on improving global economic outlook. We remain cautious on the Group’s nearterm outlook and retain our Underperform call on SLP Resources with unchanged target price of RM0.73. On a side note, SLP declared a 3rd interim dividend of 1.25sen, bringing total dividend for FY23 to 3.5sen (FY22: 4.0sen).

• 3QFY23 revenue fell 11.8% YoY to RM41.7m due to softening demand from its overseas markets (-30.8% YoY) as export growth continued to be hampered by sluggish global demand. Revenue from its key export markets, Japan and Australia YoY fell by 18.1% and 45.6% respectively. This was partly negated by marginally higher demand from local market (+3.5% YoY).

• 3QFY23 net profit decreased by 46.0% YoY to RM2.7m. Aside from lower revenue, the significant drop in profit was due to change in product mix and higher production cost arises from increase in utility cost as well as lower plant utilisation. Furthermore, average selling price (ASP) was under pressure due to intense competition. Net profit margin for 3QFY23 fell to 6.4% (3QFY22: 10.5%, 2QFY23: 9.3%).

• Outlook for the flexible plastic packaging industry continues to be weighed by sluggish external demand. While raw material and logistic costs have eased, over-supply and weak 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 innovations and continue to exercise financial discipline to ensure sustainable profitability to stakeholders.

Source: PublicInvest Research - 14 Nov 2023