SKP Resources (SKP) reported a weaker 3QFY24 net profit of RM23.4m (- 42.5% YoY, -13.4% QoQ), a slight surprise considering that the quarter is a seasonally stronger one, typically. We gather activity has already picked up this current quarter however. Cumulative 9MFY24 net profit of RM72.1m (-42.0% YoY) is slightly above our estimates at 79% of full-year numbers though within consensus at 77%. While there are early signs of recovery, we err on the side of conservatism and maintain our estimates pending more consistency on the improvement in demand. Dissipating inflationary pressures and expectedly looser monetary conditions in the months ahead should aid the recovery in consumption spending. We continue to like the long-term growth prospects of SKP, though we also see more notable earnings recovery only occurring in lateFY25 for the reasons mentioned earlier. We retain our Trading Buy call with an unchanged PE-derived target price of RM0.88.

• 3QFY24 performance. The current quarter’s revenue of RM453.1m (- 38.8% YoY, -12.8% QoQ) continues to reflect subdued global demand, the weaker numbers somewhat of a surprise considering that the OctoberDecember period is a seasonally stronger one. Net profit margin of 5.2% continues to remain below historical average (~6%) due to lower capacity utilization and higher manpower costs. Net profit for the quarter is lower at RM23.4m as a result. Management continues to highlight its focus on cost optimization measures at existing manufacturing facilities to mitigate negative effects of the current slowdown.

• Prospects still encouraging. The Group, like many other discretionarybased consumption-driven companies, has taken a hit from subdued global consumption spending, though this is still expected to normalize this year on the back of an expected easing in monetary tightening. The Group remains primed to benefit from any resumption in order flows with its readily-available capacity, manpower and delivery track record. Management has also highlighted the need to widen its customer base, an effort which we gather is bearing some fruit with the recent securing of orders from a new client, though the amount is still currently insignificant.

Source: PublicInvest Research - 27 Feb 2024