SLP Resources (SLP) reported a weak set of results: 2019 core net profit fell by 14% yoy to RM22m, largely due to weaker revenue (-11% yoy). Overall, the results were below street and our expectations. We expect orders for SLP’s products to remain soft in the coming months against the challenging macro outlook amid the Covid-19 outbreak. As such, we cut our 2020-21E earnings by 2-8%. Post revision, we lower our TP to RM1.15 (from RM1.25) and reaffirm our HOLD rating.

2019 Core Net Profit Fell by 14%; Below Expectations

SLP booked lower 2019 core profit of RM22m (-14% yoy) due to lacklustre revenue (-11% yoy, attributable to weaker demand from both domestic and export markets), partly cushioned by a better EBITDA margin (+1.5ppts to 18.4%, on lower resin costs and better cost controls). Overall, the results were below street and our expectations, constituting 89% of our full-year profit forecasts. The variance to our forecast was largely due to lower-thanexpected revenue. Elsewhere, SLP announced a 1.5sen interim dividend in 4Q19, bringing 2019 DPS to 5.5 sen (2018 DPS: 4.5 sen).

Sequentially, 4Q19 Earnings Were 25% Weaker

Sequentially, the Group’s 4Q19 core net profit fell by 25% qoq to RM4.2m on lower revenue (-11% qoq), a weaker 4Q19 EBITDA margin (-1.7ppts to 17.2%) and a higher effective tax rate of 23% (3Q19:17%). Management

guided that customers were still adopting a ‘wait and see’ approach in placing orders due to the declining prices of plastic packaging products and the economic slowdown.

Maintain HOLD at a Lower TP of RM1.15

We cut our 2020-21E earnings by 2-8% to account for the weaker demand amidst the challenging business outlook and lower our TP to RM1.15 (from RM1.25), based on an unchanged 15x 2020E PER. Maintain HOLD. At 14x 2020E PER, SLP is trading within its past-10-year average mean of 15x: valuation looks fair. Key upside/downside risks to our call include: i) volatility of resin costs, (ii) foreign currency risk (from strengthening/weakening Ringgit), and (iii) stronger/weaker Japan sales.

Source: Affin Hwang Research - 27 Feb 2020