SKP Resources (SKP) reported a healthier 4QFY24 net profit of RM24.7m (+53.1% YoY, +5.3% QoQ) on the back of steady revenue contribution of RM458.8m (-5.1% YoY, +1.3% QoQ), the latter reflective of gradual recovery in product demand. Profit margins also improved as management undertook optimization exercises to mitigate hikes in production cost amid reduced economies of scale from lower sales orders. Cumulative FY24 net profit of RM96.8m (-31.1% YoY) is above our and consensus estimates a106% and 105% of full-year numbers respectively. We are encouraged by headway being made by the Group in expanding its customer base, with another new customer having been on-boarded recently, though initial order flows are relatively minimal for now. Further dissipation of 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, and upgrade our call to Outperform. Our PE-derived target price is raised to RM1.30 as we roll-over our base valuation year to CY25 on an unchanged 15x multiple.

4QFY24 performance. The current quarter’s weaker revenue of RM458.8m on a YoY basis (-5.1% YoY, +1.3% QoQ) continues to reflect subdued global demand, though it is also encouraging to note that activity is starting to resume, as seen in the sequential improvement. Net profit margin of 5.4% (3QFY24: 5.2%), while still below the historical average of ~6%, is on the right track toward full recovery with management undertaking cost optimization initiatives amid reduced orders from key customers.

Securing new customers. The Group remains primed to benefit from any resumption in order flows with its readily-available capacity, manpower and delivery track record. We are also encouraged to note that management has made further headway in widening its customer base, having recently on-boarded an American-based customer after securing a Europeanbased one earlier this year. Financial contributions are not expected to be meaningful this financial year as mass production is only anticipated to commence in October (half-year impact, on FY basis). We gather cumulative order flows (on annual basis) from these 2 new customers amount to about 6%-7% of current revenue.

Source: PublicInvest Research - 4 Jun 2024