2QFY21 NP of RM44.1m brings 1HFY21 NP to 54.1m (+24.7% YoY). We deem the results to be within expectations, representing 44% and 45% of our and consensus forecasts, respectively. The group managed to log a strong recovery in 2QFY21 and is expected to keep the momentum going for the entire FY21 on the back of robust orders from key customer and its PCBA line turning profitable. We are positive on the company’s ability to achieve our forecasts but believe the current valuation has priced in such optimism. We revise our call to MARKET PERFORM with an unchanged TP of RM1.83.

Within expectations. 2QFY21 NP of RM44.1m (+339% QoQ; +77% YoY) brings 1HFY21 NP to 54.1m (+24.7% YoY). We deem the result to be in line with expectations, representing 44% and 45% of our and consensus respective full-year forecasts.

Results highlight. YoY, 2QFY21 NP jumped 77% to RM44.1m on a 49% increase in revenue to RM726.3m as operations have fully returned to optimal level. QoQ, 2QFY21 NP soared 339% on an 82% jump in revenue as the group worked overtime to deliver backlogs along with a healthy addition of new orders. The drastic variation was due to a low base effect in 1QFY21 when operations were plagued by the MCO lockdown.

Operations are back on track. In line with management’s guidance, the group managed to log a strong recovery in 2QFY21 and is expected to keep the momentum going for the entire FY21. The group indicated that visibility remains healthy as orders from key customer continue to remain robust, coming from both the household and beauty product lines. The convenience of e-commerce has helped sustain the continuity of consumer spending on these products amid the CMCO period.

More projects incoming. We gather that the group’s pipeline is currently fully booked with a slew of exciting household and hygiene products. SKP also expects to tender for more jobs towards the end of 2020. The group’s PCBA and battery pack assembly lines are expected to contribute positively in FY21-FY22. In addition to providing PCBA for existing household products, the group is also in the midst of getting qualified by its key customer to supply PCBA for other newly launched products that are currently in the group’s portfolio. With all the models fully optimised, we expect to see margin normalisation.

Maintain FY21E and FY22E NP of RM122.4m and RM147.8m, respectively.

We revise our call to MARKET PERFORM from OUTPERFORM with an unchanged Target Price of RM1.83 based on 16.2x CY21E PER, representing +1SD to 5-year mean. We remain positive on the group’s ability to achieve our forecasts, but believe current valuation has factored in such optimism.

Risks to our call include: (i) lower-than-expected orders (ii) higher input costs, and (iii) single customer concentration risk.

Source: Kenanga Research - 20 Nov 2020