SKPRES’s FY24 results beat expectations. Nonetheless, its FY24 core net profit still fell 31% YoY on lower orders across its product portfolio. It guided for positive outlook driven by improved orders from its existing customers and the potential onboarding of two new customers. We lift our FY25F net profit forecast by 14%, increase our TP by 59% to RM1.35 (from RM0.85) and upgrade our call to OUTPERFORM from MARKET PERFORM.

SKPRES’s FY24 net profit of RM96.8m beat our forecast and consensus estimate by 9% and 5%, respectively. The variance against our forecast came largely from better-than-expected loading volume in 4QFY24.

YoY, SKPRES’s FY24 revenue declined 25.9% on the back of lower orders across its product portfolio amidst weak consumer sentiment, resulting in a slump in demand for household products.

Correspondingly, its core net profit fell 31%.

QoQ, its 4QFY24 revenue inched up 1.3% but core net profit grew by a sharper 5.3% on improved margins from internal cost control initiatives and operational efficiency boost to counter lower loading volumes.

Outlook. SKPRES guided for growth to resume in FY25 on pickup in order from its existing customers (although it is still some distance away from its peak revenue of RM2.5b in FY23 but is certainly on the right track towards the number). Mindful of its customer concentration risk, the group has stepped up its efforts to diversify its customer base. It is in the midst of securing two new potential customers with intentions to begin production towards end-2024. Meanwhile, it will continue to work towards learner and more effective operating structure

Forecasts. We raise our FY25F earnings forecast by 14% and introduce our FY26F number which projects a 15% growth.

Valuations. Consequently, we increase our TP by 59% to RM1.35 (from RM 0.85) based on a higher 16x (previously 15x) on rolled-forward FY26F EPS. The higher valuation reflects the uptrend in peer’s forward mean but we still retain a c.10% discount as the group still lacks customer diversity compared to peers. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like SKPRES as: (i) a good proxy to an innovative premium consumer electronics brand, (ii) it has an edge over its peers given its vertical integration, and (iii) it employs an effective cost pass-through model. Given that its earnings trajectory has resumed on an upward direction coupled with a rerating across tech names, we upgrade our call to OUTPERFORM from MARKET PERFORM.

Risks to our call include: (i) new products hitting mass production stage slower-than-expected, (ii) a weaker recovery in its order flow, and (iii) customer concentration risk stays high.

Source: Kenanga Research - 4 Jun 2024