• SLP Resources’ (SLPR) 4Q20 core net profit fell by 4.1% qoq to RM4.1m as higher revenue was offset by higher operating costs and a weaker US$
• SLPR’s 2020 core net profit declined by 24.7% yoy to RM16.4m – below street expectations but within ours
• We cease coverage on the stock due to a reallocation of resources. Our last recommendation was a HOLD with a target price of RM0.96.

4Q20 Core Profit Fell by 4.1% Qoq to RM4.1m

SLPR’s 4Q20 core net profit fell by 4.1% qoq to RM4.1m due to the weaker US$ which led to a lower average selling price (ASP) for plastic packaging products. Despite the lower ASP, revenue increased by 10.3% to RM40.9m mainly due to a pick-up in export sales to Japan (+25% qoq) and other countries (+87% qoq). This was dampened, however, by higher operating costs which we believe was partly attributable to higher resin prices. In tandem, the EBITDA margin fell 3.4ppts qoq. SLPR declared a fourth interim dividend of 1.5sen, bringing the 2020 DPS to 5.5 sen (2019 DPS:5.5 sen).

2020 Core Net Profit Dropped by 24.7% Yoy; Within Our Expectations

2020 core net profit declined by 24.7% yoy to RM16.4m due to an 11.9% yoy fall in sales and a higher effective tax rate of 27% (vs 2019 tax rate of 15% due to the absence of reinvestment allowance). Sales to export markets fell in 2020 due to disruption caused by the pandemic (Japan: -21% yoy; EU: -98% yoy; Australia: -41% yoy and other countries: -44% yoy), cushioned by a 17% yoy increase in Malaysia sales. Meanwhile, the EBITDA margin improved by 0.8 ppts yoy due to better cost control and production efficiency. Overall, earnings were below street expectations (95% of consensus full-year forecast) but within our expectations (97% of our full-year estimate).

Ceasing Coverage

Due to a reallocation of resources, we cease coverage on SLPR. Our last call on the stock was a HOLD with a target price of RM0.96, based on a target PER multiple of 15x on the 2021E EPS. Key upside risks: i) an effective vaccine for Covid-19, ii) strongerthan-expected demand, and iii) lower resin prices. 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 - 25 Feb 2021