Valuation / Recommendation

We recommend a BUY on SKP Resources Bhd with a TP of RM2.00 based on FY24F EPS 13.8 sen and PE of 14.5x in line with its peers’ average. We like the stock for its attractive expansion plans and dividend payments. The target price represents a potential return of 20.5% over the current price.

Investment Highlights

Solid track record. SKP Resources is one of Malaysia’s largest and quickest- growing integrated contract manufacturer, catering to the E&E, Industrials, Automotive, Food and Beverage Industries. Besides being ranked 46th in the latest Manufacturing Market Insider (MMI)’s Top 50 EMS Providers in 2021, the company was able to achieve stellar results with a 4-year CAGR of 8.8% from FY19 to FY22 despite the COVID-19 pandemic.

The company achieved a record high profit in FY22 due to robust sales and growth diversification across various industry segments namely EMS and non- EMS sectors. Our estimates assume 2H23 to be stronger on the back of higher sales propelled by festive seasons and new product launchings, which is on track to achieve another record year.

Capacity expansion. In FY22, the company invested approximately RM94.39m including the on-going construction of a new multi-storey factory building (Plant 5, site 5) on a 6.4-acre plot of land in Johor Bahru, expected to be fully constructed within March 2023. With the completion of plant 5, this will provide an additional floor space of 650,000 sq. ft. which is 50% more than its existing floor space.

The new plant will house new assembly lines and new printed circuit board assembly facilities to cater for the growth over the next 3 years. The company also completed the acquisition of another new land in Johor Bahru (site 6) in April 2022, which is not far from site 5. The newly acquired site 6 spans 7.9 acres which will be utilised to cater for future growth and expansion.

Experienced management team. The company is headed by Dato’ Gan Kim Huat who has over 30 years of experience in plastics injection moulding industry.

Collectively, the management team has an average industry experience of more than 10 years, supported by a long-serving technical team to spearhead the business going forward.

Dividends. The company has a minimum dividend pay-out policy of 50%. A final single-tier dividend of 5.55 sen per ordinary share was declared in FY22 which constitute approximately 50% of the Group’s profit after tax (PAT).

Risk factors. (1.) Failure to secure orders from customers. (2.) Raw material shortages arising from supply chain disruptions.

Source: Mercury Securities Research - 12 Dec 2022