SFP recorded a 4Q22 core net profit of RM9.2m (+15% QoQ, not disclosed YoY) and FY22 core net profit of RM31.2m. The results transcended our expectations but were within consensus at 108%/101% of ours/consensus full-year forecasts respectively. We believe that key variance against our estimates was mainly due to the better-than-expected contribution from the group’s Mechanical Assembly segment. We raise FY24f net profit forecast by 11% to account for higher revenue growth assumptions for the group’s AES segment. Post results, we maintain HOLD with a higher TP of RM2.37/share (pegged to a multiple of 32x on revised FY24f earnings) as we believe that positives have been pretty-much priced in at current levels.

Transcended our expectations but within consensus. SFP recorded a 4Q22 core net profit of RM9.2m (+15% QoQ, not disclosed YoY) and FY22 core net profit of RM31.2m – after having adjusted for: (i) RM1.2m of forex gains; (ii) RM1.6m gain on acquisition; and (iii) RM2.0m of one-off listing expenses. The results transcended our expectations but were within consensus at 108%/101% of ours/consensus full-year forecasts respectively. We believe that key variance against our estimates was mainly due to the better-than-expected contribution from the group’s Mechanical Assembly segment.

Dividend. A 0.5 sen/share dividend was declared (ex-date: 3 March 2023). FY22 dividends totalled 1.0 sen/share – within our expectations at 0.9 sen/share.

QoQ. 4Q22 core net profit was up 15% QoQ, mainly attributed to a major increase in revenues for its Automated Equipment Solutions (+51% QoQ) and Mechanical Assembly (+402% QoQ) segments. We note that blended core net margins improved slightly by 0.6ppts in 4Q22 to 36.9%.

YoY/YTD. Not Disclosed.

Outlook. We opine that SFP is on-track to register back-to-back record high profits annually in FY23-24f 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 sq ft (essentially triples the group’s total current built-up area of 152.5k sq ft); 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. Minimal changes in FY23f numbers after minor tweaks in our model. We raise FY24f net profit forecast by 11% to account for higher revenue growth assumptions for the group’s AES segment.

Raise TP to RM2.37, maintain HOLD. We maintain HOLD on SFP Tech with a higher TP of RM2.37/share (from RM1.53/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 32x on revised FY24f earnings – which is somewhat at parity to its peers’ simple average forward P/E multiple of 32.5x (see Figure #3).

Source: Hong Leong Investment Bank Research - 20 Feb 2023