SKP Resources’ FY13 results were below our and consensus estimates. Revenue  inched  up  by  1.9%  y-o-y  while  earnings  rose  10.3%  y-o-y  on the  back  of  lower  operating  costs.  We  are  paring  down  our  FY14 numbers in view of the lower margin arising as a result of implementing minimum wages.  Maintain BUY, with a new FV of MYR0.40, based on 9x CY13 EPS.  

- Below expectations. SKP’s FY13 revenue grew by a marginal 1.9% y-o-y  from  MYR414.8m  to  MYR422.5m  due  to  stable  demand  for  plastic injection moulding and value-added services such as assembling plastic products  and  components  for  the  electrical  and  electronics  industry. Earnings  rose  10.3%  y-o-y  to  MYR40.6m,  mainly  supported  by  lower operating  expenses  (-12.5%  y-o-y).  Vis-à-vis  3Q13,  the  company’s top- and  bottomlines  eased  2.7%  and  28.7%  respectively  owing  to  lower sales  during  the  festive  season  and  higher labour  cost  as  the  company implemented mandatory minimum wages.  

- Weaker margin ahead. The company’s gross margin was flat at 16.7% y-o-y  while  the  EBIT  margin  improved  by  80bps  to  12.4%  y-o-y  on  the back  of  lower  operating  expenses.  We  are  expecting  a  lower  margin going  forward  due  to  the  higher  operating  cost  arising  from implementation of the minimum wage policy.

- Maintain BUY. We are cutting our FY14 forecasts by 20.7% due to the weaker turnover and higher labour cost. Maintain BUY, but with a lower FV of MYR0.40 vs MYR0.49 previously, based on 9x CY13 EPS.

Source: RHB