FY22 core net profit of RM31.1m was within our forecast. Overall, profit margin improved sequentially on better operational cost efficiency and better product mix. Nonetheless, due to the lack of the inventor’s interest while the company is diverting its core business, we are ceasing active coverage on SCGM for now. It is now a NOT RATED stock with our last TP of RM2.53. FY22 results was in line with core net profit of RM31.1m which made up 101.8% of our full-year estimates while FY22 DPS of 6.4 sen came within our estimates of 6.3 sen.

YoY, revenue rose 15.5% to RM284.7m, thanks to higher sales volume from the food packaging segment. EBIT margin declined 1.7ppt to 13.4%, likely due to higher production costs. The group’s CNP dipped by 8.7% on a higher effective tax rate of 18.8% (vs. FY21: 9.5%).

QoQ, despite muted revenue growth of 0.3% in 4QFY22, EBIT margin improved by 39.4% on the back of (i) better cost efficiency amid the rising costs and (ii) better product mix as adjusted ASPs on selected products. All in, the group recorded CNP of RM8.0m, albeit higher deferred tax expenses.

Outlook. We gathered that resin prices have softened and are expected to stay at higher price levels. We believe the group’s top line will continue to sustain on the back of sustained demand with a current utilization rate of 65-70%. However, we are cautious that its bottom line may be impacted by (i) higher operational costs due to labour shortage and (ii) volatile resin costs.

Post results, no changes to our FY23 earnings estimate while we introduce FY24 earnings forecast of RM38.7m.

Ceasing Coverage. Due to lack of investor’s interest as well as the impending disposal of its entire core business for a cash consideration of RM544.4m, we are ceasing active coverage on SCGM for now. The stock is now assigned NOT RATED from MARKET PERFORM with our last TP of RM2.53, based on unchanged FY23E PER of 14x, which is a c.23% premium to 1-year forward sector average forward PER of 11.4x.

Source: Kenanga Research - 30 Jun 2022