• SLP Resources (SLPR)’ 3Q20 core net profit recovered by 11% qoq to RM4.3m as business activity continued to pick up.
• Despite the better 3Q20 results, SLPR’s 9M20 core net profit declined by 29% yoy to RM12.3m, below our and street expectations.
• We cut our earnings estimates by 9% for 2020-22E, and lower our 12-month TP to RM0.96 based on unchanged 2021E PER of 15x. Maintain HOLD.

3Q20 Core Profit Recovered by 11% Qoq

SLPR’s 3Q20 core net profit recovered to RM4.3m (+11% qoq) on the back of the higher revenue of RM37.1m (+7% qoq; recovery in Malaysia volume sales ensued post MCO) and higher EBITDA margin (+1.5ppts qoq). SLPR declared a third interim dividend of 1.5sen during the quarter (3Q19: 1.5sen).

9M20 Core Net Profit Dropped by 29% Yoy; Below Expectations

Despite the better 3Q20 results, SLPR’s 9M20 core net profit declined by 29% yoy to RM12.3m, due to lower revenue (-18% yoy, largely due to lower sales for the Japan and Australia markets) and a higher effective tax rate of 26% (vs 9M19 tax rate of 15% due to the absence of reinvestment allowance). Overall, earnings were below our and consensus expectations, accounting for 65%-66% of the respective full-year estimates. The variance to our estimate was due to the higher-than-expected effective tax rate. We continue to expect the better 3Q20 performance to be sustained into 4Q20 as the company is experiencing signs of improvement in local business activities and the yearend festive season bodes well for festive flexible packaging in Australia market.

Maintain Hold With a Lower TP of RM0.96

We cut our 2020-22E core EPS by 9%, after incorporating a higher effective tax rate of 24% (vs our previous forecast of 19%). In tandem, we lower our 12-month TP to RM0.96 (from RM1.05) based on an unchanged 15x 2021E PER. At 14x 2021E PER, the valuation looks fair as SLPR is currently trading close to its 10-year average of 15x. Maintain Hold. Key upside risks: i) an effective vaccine for Covid-19, and ii) stronger-thanexpected demand. Downside risks: i) key customer risk; ii) reliance on foreign labour, iii) higher-than-expected start-up expenses, and iv) an economic slowdown

Source: Affin Hwang Research - 9 Nov 2020