1QFY21 CNP of RM6m came within expectation at 28% of our FY21 estimate. DPS of 1.0 sen is also as expected. As manufacturing and trading ASPs caught up while resin prices flattened, revenue rose and margins expanded QoQ. In the near term, we expect both ASPs and resin prices to remain stable. Maintain FY21E/FY22E CNP of RM22m/RM23m and DPS of 5.5 sen each, yielding 5.8%. Maintain OP with unchanged TP of RM1.22 based on FY21E EPS of 6.77 sen at 18x PER, @-0.5SD of 5-year mean. 1QFY21 CNP within estimate.

1QFY21 revenue/CNP of RM46m/RM6m came within expectation at 26%/28% of our full-year estimate. 1QFY21 dividend of 1.0 sen is also as expected (1QFY19 and 1QFY20 each saw DPS of 1.0 sen, with 1.5 sen in subsequent quarters).

YoY, revenue rose by 35% mainly due to higher ASPs in both manufacturing and trading segments, in tandem with higher resin prices. Manufacturing volume is likely still recovering from lockdowns, while trading volume is likely higher due to global resin supply shortage. Operating profit rose 59% due to better product mix. CNP rose 51% in tandem with the 52% rise in PBT, as the tax rate remained stable at 24% (vs. 1QFY20: 24%).

QoQ, revenue rose 12% to RM46m (vs. 4QFY20: RM41m), thanks to: (i) higher manufacturing and trading ASPs, and (ii) contribution from new packaging product. In Malaysia, despite MCO 2.0 in 1QFY21, SLP’s sales rose by 17%, likely due to a mix of higher ASPs and volume. Operating profit rose by 48% as operating margins rose from 12.8% to 16.9%, likely due to better product mix and higher trading margins. All in, CNP was up by 66% on a lower effective tax rate of 24% (vs. 4QFY20: 29%).

Outlook. We expect SLP’s sales to remain robust on the back of: (i) elevated ASPs as resin price remains steady at current levels and (ii) robust volumes, as SLP continues to ramp up their utilisation rate, which stood at 63% by end of 1QFY21 vs. 60% at the start, to an expected average of 65% for FY21. While we believe that ASPs continued rising in April, we foresee ASPs to remain stable for the rest of the year as we believe resin costs will likely remain stable too. We continue to assume an average resin cost of USD1,100/MT for SLP in FY21, in-line with SLP’s average resin cost YTD. Despite the imposition of MCO 3.0, we believe that sales in Malaysia will remain robust, as when SLP weathered through MCO 2.0 in 1QFY21.

Maintain FY21E/FY22E CNP of RM22m/RM23m. Given SLP’s strong net cash position and policy of not paying less than the trailing prior DPS, we maintain our DPS of 5.5 sen each for FY21 and FY22, implying 5.8% yield.

Maintain OUTPERFORM with unchanged TP of RM1.22 based on FY21E EPS of 6.77 sen and an ascribed forward-PER of 18x, which is - 0.5SD to its 5-year mean of 21x. We have applied a slight discount to the valuation to reflect the potential slow recovery in demand, seen in the lower-than-ideal utilisation rate (ideal rate: 70%~80%). We continue to like SLP given its commendable 1QFY21 performance despite an environment with high costs. Management’s selective expansion of products also allows SLP to maintain its superior margins and weather future resin cost fluctuations. A reliable dividend yield of 5.8% is also the highest among its peers.

Risks to our call include: (i) higher-than-expected resin cost, (ii) lower export demand, and (iii) foreign currency risk.

Source: Kenanga Research - 10 May 2021