4QFY21 NP of RM30.7m (+580% YoY) brought FY21 NP to RM128.3m (+75% YoY). We deem the results to be within expectations, representing 105%/103% of our/consensus full-year forecasts. SKP has won the third product contract (for a beauty product) from its key customer, scoring a 100% tender win-rate this year. Production floor is at peak capacity due to strong order volume despite the pandemic. To fulfil recently awarded product contracts and future job wins, SKP will be building a new 600k sq. ft. plant by July 2022. Maintain OUTPERFORM and TP of RM2.40.

Within expectations. 4QFY21 NP of RM30.7m (+580% YoY) brought FY21 NP to RM128.3m (+75% YoY). We deem the results to be within expectations, representing 105% and 103% of our and consensus full year forecasts, respectively.

Results’ highlight. YoY, 4QFY21 NP climbed 580% to RM30.7m on a 4.4% increase in revenue to RM444.9m as the group secured higher order volume from its key customer on strong consumer demand for household products despite the pandemic. Cumulatively, FY21 NP jumped 75% to RM128.3m while revenue increased 25% to RM2.3b. QoQ, 4QFY21 NP dipped 30% on a 38% decline in revenue as the previous quarter was seasonally stronger due to the festive season and year-end promotions. However, the group saw operational improvement on a QoQ basis as EBIT margin rose 0.7ppt to 8.8% while NP margin rose 0.8ppt to 6.9% which are ahead of its peers. This was possible thanks to the group’s effort to internalise its PCBA production and reduce reliance on external suppliers.

Well positioned. The group managed to clinch the third product contract from its key customer, securing a 100% win rate for this year’s tender activity. The first product already started production in April 2021 while the second one will begin in Dec 2021. The third product (beauty care) is slated to commence production in Mar 2022. We believe that SKP’s operational track record has managed to impress its key customer, positioning the group as the preferred contract manufacturer among its peers for future product awards.

600k sq. ft. expansion. Current utilisation rate is at its peak as existing products continue to see overwhelming order volume from its key customer. To fulfil the recently won tenders and take on more products award in the future, SKP has acquired a 6.4 acre land for RM14m in Johor Bahru and set aside RM45m for the construction of a new plant which is slated to be completed by July 2022, a slight delay from initial timeline of end-2021 due to the pandemic. This will provide an additional 600k sq. ft. of production space, representing a 60% increase from existing floor space.

Maintained FY22E NP of RM161.6m and introduced FY23E NP forecast of RM173.3m, representing 26% and 7% growth, respectively.

Maintain our OUTPERFORM call with unchanged Target Price of RM2.40 based on 23x FY22E PER, representing +2SD to 3-year mean.

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

Source: Kenanga Research - 4 Jun 2021