1HFY21 CNP of RM10.5m came within expectation, at 49% of our FY21 estimate. 2QFY21 DPS of 1.5 sen brought 1HFY21 DPS to 2.5 sen, as expected. The lower QoQ earnings were expected due to lockdown restrictions, which affected production. We are bullish on SLP’s recovery prospect once economies reopen. Maintain FY21E/FY22E CNP of RM21.5m/RM22.5m and DPS of 5.5 sen each, yielding 5.9%. Reiterate OP with unchanged TP of RM1.22 based on FY21E EPS of 6.8 sen at 18x PER, at -0.5SD below the 5-year mean.

1HFY21 CNP within estimate. 1HFY21 revenue/CNP of RM87.6m/RM10.5m came within our expectations, both at 49% of full- year estimate. 2QFY21 DPS of 1.5 sen brought 1HFY21 DPS to 2.5 sen, in-line with our estimate.

YoY, revenue rose by 27% to RM87.6m, thanks to: (i) elevated ASPs, and (ii) higher demand from both manufacturing and trading segments. Operating profit rose 36.3% due to a better product mix. PBT and CNP rose in tandem by 32 and 33%, respectively.

QoQ, revenue declined by 9.8% due to: (i) lower sales volume of plastic packaging products, mainly caused by a reduction in production output amidst a 60% workforce restriction, and (ii) decrease in trading volume, as resin prices are gradually declining and thus resin buyers are not stocking up resin inventories. Operating profit fell 24% due to higher production costs and lower trading margin. All in, CNP fell by 25.8%.

Outlook. Despite SLP’s production being adversely affected by a limited workforce (due to safety protocols) and thus resulting in lower utilization rate of 45-50% (vs. 60-65% pre-MCO), we remain optimistic on SLP’s outlook. We think that once Phase 1 of the national recovery plan is lifted, SLP will be able to: (i) fulfill the strong demand for its products, and (ii) ramp up their utilization rate. We still expect an average utilization rate of 65% for FY21. While resin prices have declined c.15% from the peak, we foresee that ASPs will taper off gradually and normalize in subsequent quarters. We continue to assume an average resin cost of USD1,100/MT for SLP in FY21, which is in-line with SLP’s average resin cost YTD.

Maintain FY21E/FY22E estimates. We maintain our FY21E revenue/CNP of RM179.7m/RM21.5m which are moderate relative to management’s targets. We also maintain our FY22E revenue/CNP of RM185.3m/RM22.5m as well as DPS of 5.5 sen each for FY21 and FY22, implying 5.9% yields.

Reiterate OUTPERFORM with unchanged TP of RM1.22 based on FY21E EPS of 6.8 sen and our ascribed forward-PER of 18x, which is - 0.5SD to its 5-year mean of 20x. We maintain our valuation to reflect their lower utilization rate and possible disruption risk to SLP’s production due to a worsening Covid-19 situation. We remain optimistic on SLP on the resilient demand for its plastic packing products, especially for niche products that fetch above-group margin as economies reopen. SLP also offers an attractive dividend yield of 5.9%, which is above the industry average of 3%.

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

Source: Kenanga Research - 9 Aug 2021