• Downgrade to HOLD (TP: RM1.07). Lee Swee Kiat Group (LSKG)’s 12MFY23 net profit of RM13.6mn was deemed in-line with our expectation and consensus at 102.5% and 96.7% respectively. An interim dividend of 3.5sen was declared for FYE2023. The group’s 4QFY23 turnover and earnings both rose by 4.6% QoQ and 19.2% QoQ, thanks to higher sales from the domestic division and a better product mix, as well as lower latex prices, despite a one-off gratuity cost of RM0.55mn. We believe LSKG's export sales division will rebound further, leveraging trade diversion to Asian ex-China regions amidst US-China geopolitical tension. Downgrade to HOLD call on LSKG with a Target Price of RM1.07 as the share price approaches our valuation. Noted that we rolled our valuation to FY25F and TP was based on PER of 11.3x pegged to EPS of 9.5sen.

• Key highlights. According to management, the export division experienced slight rebound in sales with an increase of 1.2% in 4Q23. Additionally, the average latex price decreased by approximately 10.2% QoQ. Overall, the core profit margin in FY23 improved by 1.2ppts compared to the corresponding year.

• Earnings Revision. No changes to our forecast.

• Outlook. We expect earnings to remain robust, driven by several factors: i) the full economic reopening, stimulating both domestic and export markets; ii) enhanced purchasing options through online platforms and retail outlets, complemented by an extended rental scheme (adjusted to 5 years of instalment payments from the previous 3 years); iii) a decline in latex prices to alleviate cost pressures; and iv) a strengthening Ringgit against the USD, benefiting its export market segment.

Source: BIMB Securities Research - 28 Feb 2024