SKPRES’s 1QFY23 results met expectations where revenue rose 7.8% YoY on resilient demand despite logistical challenges while CNP grew at an even stronger 14.5% on improved efficiency on the printed circuit board assembly (PCBA) front. We expect its growth trajectory to sustain with the introduction of new products, awarded by its key customer, in October. We maintain our forecasts, TP of RM2.10 and OUTPERFORM call.

Within expectations. 1QFY23 CNP of RM555.2m (+7.8% YoY) came in within expectations, representing 21% and 20% of our full-year forecast and the full-year consensus estimate, respectively.

Results’ highlight. YoY, 1QFY23 revenue increased 7.8% YoY on the back of resilient demand for its manufacturing services relating to home care and personal care products despite the sporadic lockdowns in China. Amidst logistical challenges as well as the implementation of higher labour wages in May 2022, 1QFY23 CNP grew at a quicker pace of 14.5% YoY as the group continued to reap the benefits of being vertically integrated. Having achieved self-sufficiency on the PCBA front has also led to improvement in net margins by 0.4ppt YoY to 6.7%.

Kickstarting new projects. SKPRES is sanguine on its growth trajectory as customers are requesting for higher volume allocation in anticipation of the year-end festive season. In addition, the group is expected to kick start the production of two new products in October which will contribute positively in 3QFY23. To cope with the additional lines, SKPRES has added 850 new workers in batches since June and will have another 250 workers coming in by September. This will bring its total workforce to approximately 7,500 workers. Moreover, the construction of a new 650k sq ft plant on a 6.4-acre land in Johor Bahru remains on track to be completed by 1QCY23, increasing its total floor space by c.50%.

Forecasts. Maintained.

Maintain OUTPERFORM and Target Price of RM2.10 based on 17x CY23F PER (in line with its peers’ average forward PER). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) loss of orders from non-renewal of contracts by its key customer, (ii) labour shortage and rising labour cost, (iii) negative social activists’ reviews on treatment of migrant workers, and (iv) unfavourable currency movements.

Source: Kenanga Research - 30 Aug 2022