• Maintain HOLD (TP: RM1.07). Lee Swee Kiat Group (LSKG) 3MFY24 core net profit of RM2.6mn was deemed in line with both our and consensus’ expectation at 19% and 21% respectively. LSKG’s 1QFY24 headline profit rose by 10% YoY thanks to robust domestic and export sales that surged 23% respectively against the previous year corresponding quarter, leading to highest quarterly revenue ever recorded at RM36mn. No dividend declared. We believe the domestic and export sales to rise further moving forward supported by innovative rental scheme and collaboration with strong brand name of Cuckoo. Maintain HOLD call on LSKG with an unchanged TP of RM1.07 based on PER of 11.3x pegged to EPS of 10sen.

• Key highlights. The average latex price in 1Q24 jumped by 20% YoY on the back of strong demand from China EVs and constraint supply of rubber production due to unfavourable weather. This led EBITDA to narrow at 15% (vs 1QFY23:18%). Of note, LSKG guided that it has started to implement hedging measures since end FY2023 to mitigate escalated raw material cost.

• Earnings Revision. No change to our forecast.

• Outlook. We reckon that LSKG’s earnings to remain sturdy, propelled by i) full economic reopening post-pandemic, ii) China trade diversion, iii) enhanced purchasing options (extended rental scheme to 5 years of instalment payments from 3 years), and iv) improved sales from Cuckoo-Napure rental model collaboration. The group target to rent out about 17,000 pieces in FY24F (vs FY23:11,000 pieces). Nevertheless, we remain cautious on the high inflation and interest rates environment, which may dampen consumer spending ability.

Source: BIMB Securities Research - 28 May 2024