Period

4Q15/FY15

Actual vs. Expectations

Slightly above expectation. FY15 core net profit (CNP) of RM25.9m came in slightly above our expectations at 106.8% of our full-year forecast of RM24.3m. This was due to better-than-expected net margins (15.1% vs. ours 14.1%) from stronger contribution by premium products and export sales. Note that there are no consensus estimates.

Our CNP excludes 4Q15 unrealised forex loss of RM1.2m.

Dividends

A second interim dividend of 1.5 sen was declared, bringing FY15 DPS to 4.5 sen as per our forecast. This translates to a 2.0% dividend yield.

Key Results Highlights

QoQ, topline was up by 7.4% driven by higher sales volume mostly in the export markets which was primarily to Japan. CNP margins improved to 17.9% on: (i) stronger USD to Ringgit, (ii) higher contribution from premium products (eg. MaxInflax), (iii) installation of the new extrusion line in Oct-15, and (iv) resin prices remaining stable at the USD1,200/metric ton (MT) range.

YoY-Ytd, topline was down slightly by 1.2% due to lower volume on domestic sales. However, PBT jumped 132.7% on higher other operating income (23.8%), and lower finance cost (-62.4%) as SLP has been actively paring down its borrowings. Additionally, due to similar reasons mentioned above, CNP margins more than doubled to 15.1%, while CNP jumped by 132.2%.

Outlook

We expect the MaxInflax bag manufacturing capacity of 1.8k MT/yr (doubling previous capacity) which kicked in 4Q15 to fully contribute to FY16E earnings.

FY16-17E CAPEX is expected to be RM6.0-6.0m for expansion and maintenance, which will be funded by internally generated funds.

Expansion plans are intact as SLP intends to construct a new plant adjacent to its existing factory with a projected capacity of 14k MT (+58%). This could increase revenue by RM60-100m in FY18.

Change to Forecasts

No change to our FY16E CNP of RM29.7m, and we introduce FY17E, with estimated dividend yield of 2.2- 2.6%.

Rating

Maintain MARKET PERFORM

Valuation

Maintain MP given that most positives have been priced in after a stellar run-up while we expect share price to remain sticky at this juncture given its margin improvement and export-driven expansion play. To encapsulate the full growth prospect of SLP, we roll forward our valuation base to FY17E from FY16E while keeping our Target PER of 15.5x unchanged, thus increasing our TP to RM2.26 (from RM1.87) (refer overleaf)

Risks

Weaker product demand from Japan (25%-30% of sales).

Foreign currency risk from strengthening Ringgit.

New entrants/competition could bite into market share.

Source: Kenanga Research - 24 Feb 2016