SFP recorded a 3Q22 core net profit of RM8.0m (+11% QoQ, not disclosed YoY) and 9M22 core net profit of RM22.0m – which we deem to be above our expectations but within consensus at 78% and 75% of full-year forecasts, respectively. We believe that key variance against our estimates were mainly due to better-than-expected contributions from both CNC Machining and Mechanical Assembly segments. We raise our FY22-24f estimates by 2%, 29% and 17%, respectively after increasing our blended utilisation rate assumptions for its CNC Machining segment. Post-results, we maintain HOLD with a higher TP of RM1.53/share (pegged to a multiple of 27x on revised FY23f earnings) as we believe that positives have been pretty-much priced in at current levels.

Deemed above expectation. SFP recorded a 3Q22 core net profit of RM8.0m (+11% QoQ, not disclosed YoY) and 9M22 core net profit of RM22.0m – after having adjusted for: (i) RM3.2m of forex gains; (ii) RM1.6m gain on acquisition; and (iii) RM2.5m of one-off listing expenses. We deem the results to be above our expectation but within consensus at 78% and 75% of full-year forecasts, respectively. We believe that key variance against our estimates were mainly due to better-than expected contributions from both of the group’s CNC Machining and Mechanical Assembly segments.

Dividend. No Dividend Was Declared in 3Q22.

QoQ. 3Q22 core net profit was up 11% mainly attributed to a major increases in revenues from its CNC Machining (+22%) and Mechanical Assembly (+111%QoQ) segments. We note that blended core net margins improved slightly by 1.9ppts in 3Q22 to 36.3% as the CNC Machining segment typically yields higher profitability margin.

YoY/YTD. Not Disclosed.

Outlook. We opine that SFP is on-track to register back-to-back record high profits annually in FY22-24f attributed to: (i) positive contribution from EEASB; (ii) completion of Manufacturing Plant 3, which will comprise a 3-storey factory and warehouse with a 3-storey office building with a built-up area of approximately 319.2k sqft (essentially triples the group’s total current built-up area of 152.5k sqft); and (iii) the addition of 41 new CNC milling machines over the next 3 years. This would add its number of machines and cumulatively increase the group’s maximum manufacturing production capacity by approximately 25.3% from 520.4k hours/year to 652.1k hours/year.

Forecast. We raise our FY22-24f estimates by 2%, 29% and 17%, respectively after increasing our blended utilisation rate assumptions for its CNC Machining segment.

Raise TP to RM1.53, maintain HOLD. We maintain HOLD on SFP Tech with a higher TP of RM1.53/share (from RM1.11/share previously) as we believe that positives have been pretty-much priced in at current levels. Our TP is pegged to a forward multiple of 27x on revised FY23f earnings – which is somewhat at parity to its peers’ weighted average forward P/E multiple of 28x (see Figure #3).

Source: Hong Leong Investment Bank Research - 14 Nov 2022