• Overview. Lee Swee Kiat Group (LSKG)’s 4Q22 revenue soared by 11.5% QoQ and 8.4% YoY to RM35.4mn steered mainly by robust domestic sales with broad-based improvement in various sales channels. Its export division remained uninspiring however no thanks to weak global consumer spending. Concurrently, FY22 core earnings rose by 72.8% YoY to RM13mn owing to higher gross profit and other income. Overall, LSKG’s core profit margin improved to 11.2% in FY22.

• Key Highlights. The group’s latex division operated with capacity utilization of only 50% in 4Q22 due to low demand from export market. Simultaneously, natural latex (raw material) price was 10.0% lower or at c.RM4.50/KG in 4Q22. Apart from that, a total impairment of approximately RM1.3mn was recognized in the quarter consisting of stock impairment, trade receivable pursuant to Cuckoo Napure rental sales and robotic arm automation project.

• Against estimates: Inline. 12MFY22 net profit of RM13mn was both in line with our and consensus forecast at 101.8% and 102.3% of full year forecast respectively.

• Dividends. An interim dividend of 3.5 sen was declared (vs FY21:2.5 sen), translating to yield of 5.4%.

• Outlook. We expect demand from export market to remain weak amid inflationary pressure and high interest rate environment. Its overall form is set to pushed by favourable raw material prices however, namely natural latex, thanks to supply glut situation.

• Our call. Maintain a BUY call on LSKG with a higher TP of RM0.93 (10% discount to the PER from 20% previously). Our valuation is based on 11.3x PER that is pegged to FY23F EPS of 8.2sen.

Source: BIMB Securities Research - 22 Feb 2023