We  deem  SKP’s  1HFY15  (Mar)  earnings  of  MYR20.2m  in  line  despite reaching  only  42.1%  of  our  full-year  estimate.  Maintain  BUY  and MYR0.85 TP, a  17.2% upside.  We expect 2HFY15 earnings to accelerate on the production of two new Dyson models, which started in early Nov 2014. No dividend was declared for the quarter under review.  We make no changes to our earnings forecasts. 

In  line  with  expectations.  We  deem  SKP  Resources’  (SKP)  1HFY15 earnings of MYR20.2m in line, despite making up just 42.1% and 43.3% of  our  and  consensus  full-year  earnings  forecasts  respectively.  This  is because we expect 2HFY15 earnings to accelerate on the back of higher utilisation  rate  from  the  production  of  two  new  Dyson  models,  which began in  early Nov 2014. We also understand that the  capacity ramp-up of the new plant is well on track.  1HFY15  earnings grew 22.9% YoY on the back of  a 26.8% growth in sales.  The surge in sales were driven by both Dyson and non-Dyson  orders. On a quarterly basis, earnings were up 9.1% QoQ due to a 6.5% increase in sales as well as improved  EBIT margin. As of 1HFY15, Dyson  contributed to  55% of its total sales.  No dividend was declared for the quarter under review.  

EBIT margin  up  again.  2QFY15  EBIT  margin  rose  to  9.4%  (1QFY15: 8.1%) due a higher utilisation rate and improved product mix. 

Forecasts and risks. We make no changes to our earnings forecasts as we  expect  a  better  2HFY15  ahead.  We  also  take  the  opportunity  to introduce our FY17 projections. Key risks to our forecasts are: i) weakerthan-expected global macroeconomic environment, which could dampen consumer  demand for  electrical  items,  and ii)  a  loss  of  orders  from its key customer Dyson.  

Investment  case.  We  maintain  our  TP  of  MYR0.85,  pegged  to  an unchanged fully-diluted FY16 P/E of 11x, broadly in  line with its closest peer VS Industry’s (VSI MK,  BUY, TP: MYR2.92) valuation of 10x.  With a  minimum  payout  policy  of  50%,  it  also  offers  an  attractive  forecast dividend yield of  5.1% for FY16  (on fully-diluted basis).  We believe the stock  deserves  a  BUY  rating  due  to  its  undemanding  valuations  and steady earnings growth from improved economies of scale.

Source: RHB