Period

1Q15

Actual vs. Expectations

1Q15 net profit (NP) of RM4.5m came in within our expectations at 23% of full-year forecast. Note that there are no consensus estimates available.

Dividends

None, as expected.

Key Results Highlights

QoQ, topline was up by 2.6% mainly due to the improvement in the trading portion as resin price improved on the back of a slight uptick of crude oil prices since Nov-14. The quarter also enjoyed: (i) improved operating profit margins by 3.5ppt to 14.6% from a better sales mix, and (ii) lower finance cost (-45.0%) as the group is paring down its borrowings. As a result, the Group’s net profit increased by 11.9% to RM4.5m.

YoY, topline was down by 6.8% to RM41.4m mainly due to the trading segment as resin prices were low due to weaker crude oil prices. However, the lower cost of raw materials due to lower resin prices and the Group’s initiative to change sales mix by increasing flexible plastic packaging products boosted PBT margins by 6.9ppt to 14.6%. That, coupled with lower financing cost (- 50.0%) due to similar reasons mentioned above, helped to increase net profit by 75.9% to RM4.5m.

Outlook

SLP is ramping up on its MaxInflex-Bags, adding on an additional 1.8k MT p.a. on top of the already planned 1.8k MT p.a. while contributions should accrete immediately after production commenced in Jul/Aug-15.

CAPEX is expected to be RM14.5m-RM6.0m in FY15-16E for expansion and maintenance.

Change to Forecasts

We make no changes to our FY15-16E NPs of RM19.4m-RM23.9m, while we are estimating dividend gross yields of 3.0%-3.7%.

Rating

Maintain OUTPERFORM

Valuation

Maintain OUTPERFORM and maintain TP of RM1.27 based on a targeted Fwd PER of 14.5x on an average FY15-16E EPS of 8.8 sen. We are partially rolling forward to FY16 to better encapsulate earnings contributions from capacity enhancements in 3Q15. Our applied PER is inline with consumer packaging peer’s average of FY15- 16E of 14.4x. We like SLP for its earnings excitement and it being one of the unwarranted cheapest consumer packaging players.

Risks to Our Call

(i) Weaker product demand from Japan (25.0%- 30.0% of sales), (ii) Foreign currency risk from strengthening Ringgit, and (iii) New entrants/competition biting into market share.

Source: Kenanga Research - 11 May 2015