SKP announced that it has secured a new 5-year contract worth MYR3bn from Dyson to produce cordless vacuum cleaners. Maintain NEUTRAL and a SOP-based MYR1.38 TP (2.7% upside). We are positive on the contract’s prospects as it signals Dyson’s continuous confidence in SKP. Thus, we keep our forecasts, having previously factored in some new contract awards into our FY16-18F (Mar) numbers.

New contract award from Dyson. SKP Resources (SKP) announced yesterday that it has secured a new contract from its main customer, Dyson Ltd, for the manufacture of Dyson cordless vacuum cleaners. According to management, the 5-year contract is worth about MYR3bn(or MYR600m annually), with production slated to commence in Jan 2016. Note that this vacuum cleaner model is different than the modelpreviously awarded to the company back in May. Management has guided for a PAT margin of ~7% for this contract, which is in line with most of its other productions.

Positive, but not unexpected. We are positive on this contract award as it signals Dyson’s continuous confidence in SKP. The production of this model will be done in SKP’s new production facility in Johor, and is expected to occupy three out of the additional 16 production lines. The product is expected to be available to ed-consumers by April/May 2016.

Earnings forecasts remain unchanged for now, as we have previously imputed some new contract awards from Dyson in our FY16 -18 earnings forecasts.

Key risks include a weaker-than-expected global macroeconomic environment, which could dampen demand for consumer products. SKP practices a cost pass-through on its USD exposure and raw material costs with its clients each month.

Maintain NEUTRAL and an SOP-based TP of MYR1.38 for now. We believe that SKP’s future growth prospects have been largely priced in at the current price levels. This report marks the transfer of coverage to Alia Arwina.