SLP Resources Berhad (SLP) reported lower net profit of RM1.4m in 4QFY23 (- 37.2% YoY) mainly due to lower revenue (-6.9% YoY) and elevated production cost. This brings full year FY23 net profit to RM10.6m, which came in below both consensus and our expectations, accounting for 74.9% and 65.0% of full-year estimates respectively. The discrepancies in our earnings forecast were mainly due to downward adjustment in average selling price as a result of intense competition in the packaging industry. We keep our estimates unchanged however, as we expect demand would improve gradually in 2024 driven by Malaysia’s export recovery and tourism boom in Japan. We retain our Underperform call on SLP Resources given our unchanged target price of RM0.73 suggests a downside of 23%. On a side note, SLP declared a 4th interim dividend of 1.25sen, bringing total dividend for FY23 to 4.75sen (FY22: 5.50sen).

• 4QFY23 revenue fell by 6.9% YoY to RM 42.8m, attributable to weakening demand from both its local (-7.4% YoY) and overseas (-6.0% YoY) markets. Revenue from one of its key export markets, Australia fell sharply by 57.6% YoY. However, this was partially offset by marginally higher demand from the Japanese market (+5.2% YoY).

• 4QFY23 net profit decreased considerably by 37.2% YoY to RM1.4m. In tandem with lower revenue, SLP faced a significant drop in profit due to higher production cost and downward adjustments in average selling price (ASP) in response to intense competition in the packaging industry. Net profit margin for 4QFY23 dropped to 3.3% (4QFY22: 4.9%, 3QFY23: 6.4%).

• Outlook for the flexible plastic packaging industry continues to be weighed by weak global demand and supply demand imbalance. Despite headwinds, there are signs of gradual improvement the operating environment and demand recovery in 2024. Headline inflation is showing signs of cooling while Malaysia’s export began the year positively and expected to continue in tandem with the bottoming out of semiconductor shipments. Besides that, the Group’s newly developed packaging products have gained favorable responses from clients and expected to break into new market however contribution from this new product to its bottom line remains negligible at this juncture.

Source: PublicInvest Research - 27 Feb 2024