3QFY22 NP of RM46.1m (+15% QoQ; -6% YoY), brought 9MFY22 CNP to RM118.6m (+22% YoY). The result came in within market expectation but slightly below ours, representing 73%/75% of our/consensus full-year forecasts, respectively. The variance was mainly due to higher-thanexpected impact from labour shortage. 9MFY22 revenue was 5% lower due different product mix but NP leapt 22% on improved yield rate. We tweaked our FY22E CNP 3% lower. Maintain OUTPERFORM with a lower TP of RM1.90.

Slightly below expectations. 3QFY22 NP of RM46.1m (+15% QoQ; - 6% YoY), brought 9MFY22 CNP to RM118.6m (+22% YoY). The result came in within market expectation but slightly below ours, representing 73% and 75% of our and consensus full-year forecasts, respectively. The variance was mainly due to higher-than-expected impact from labour shortage which lowered the group’s efficiency rate.

Results’ highlight. QoQ, 3QFY22 NP came in 15% higher to RM46.1m on a 22% increase in revenue to RM62.5m as the group benefited from higher demand for household products which was in line with the year-end season. However, we believe the slower pace in NP growth is likely due to manpower, instead of demand, challenges. As a result, EBIT margin was slightly lower at 9% (vs. 3QFY22 of 9.5%). YoY, while 3QFY22 revenue dipped 6% on a less favourable product mix, the group made up with a higher NP of 6% thanks to improved yield rates. On a cumulative basis, 9MFY22 revenue was slightly lower by 5% but NP leapt 22%.

Better 4QFY22 ahead. Moving into 4Q, we anticipate a better performance on a YoY basis with the absence of plant shutdown compared to 3QFY21. In addition, the group has started work on two of the newly won household devices in Dec 2021 and Mar 2022 which is expected to see contributions in the upcoming quarter and into FY23. In anticipation of more orders from existing customer and new customers currently in discussion, SKP is building a new 4-storey c.750k sq ft plant on a 6.4-acre land in Johor Bahru which will increase its total floor space by c.75%. The group has recently purchased another 7.9-acre land nearby for future expansions beyond FY23.

We fine tune FY22E earnings by -3% to RM156.7m while keeping FY23E NP at RM182.3m, representing 22% and 12% growth, respectively.

Maintain OUTPERFORM with a lower Target Price of RM1.90 (previously RM2.60) based on 17x (previously 23x) CY22E PER, representing +1SD to 5-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 - 28 Feb 2022