SKPRES' medium-term prospects are looking better with: (i) new contracts from its key customer, (ii) margin enhancement from the commencement of its long-awaited printed circuit board assembly (PCBA) line, and (iii) more appealing risk-reward ratio. BUY with a Target Price of RM1.45 based on a higher valuation of 14.0x FY20 PER, close to its 3-year average. Besides a decent upside of 10%, decent FY19-20E dividend yields of 3.2-4.1% should appeal to investors.
While 9M19 saw a slower uptake in its electrical appliances following the shift of its main customer to newer models, we expect FY20 to see a recovery in its box-built orders, driven by: (i) new lifestyle products from its key customer, (ii) new model variant for one of its conventional electrical appliance, and (iii) resilient orders from its personal care products (c.50% coming from Asia). These should comfortably anchor our FY20E top-line forecast of RM2.2b.
SKPRES' first PCBA line is slated to commence in Apr 2019, while additional lines for newer products are expected to begin in Sept 2019. The new PCBA capability also paves way for more contracts given the key customer's emphasis for its contract manufacturers to be vertically integrated. Additionally, we estimate this would improve margins by c.0.5ppt.
The group has already identified a 2.2-acre land and placed orders for new plastic injection machines in anticipation of new products, while its Johor plant still has c.50% of floor space to cater for new contracts. Currently, SKPRES is lagging with FY20E PER of only 12.5x compared to ATAIMS' 15x PER. Now with SKPRES' new PCBA capability, we believe current valuations are unjustified thus, should see some re-rating. Note that SKPRES also pays the highest quantum of dividend (50% payout) translating into decent FY19-20E dividend yield of 3.2-4.1%.
Source: Rakuten Research - 18 Mar 2019
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