SKP remains a proxy to Dyson’s success as a frontrunner in floor care and air-related technologies. Despite a slight delay in the kick-start of the new cordless vacuum model production, we expect SKP to continue to book strong orders from Dyson in FY17-18 on the back of rising demand for the latter’s high-performance floorcare and lifestyle products. However, we think SKP’s near-term earnings prospects have mostly been priced in. Maintain NEUTRAL, with an unchanged TP of MYR1.42 (7% upside), based on an unchanged 11.3x FY17 P/E – its 5-year historical average – which is near its closest peer VS Industry’s 11x.

Visible earnings drivers. SKP Resources’ (SKP) continuous partnership with Dyson would be a major earnings driver for the company, as Dyson plans to launch over 100 new products over the next three to four years. SKP is expected to post a 3-year earnings CAGR of 61.6% in FY15-18F. Its ample available capacity at its new factory, estimated at 70%, also means that SKP is well-positioned to win more potential contract awards from Dyson. Looking beyond FY16. While we trim FY16F earnings by 6% due to the delay in the kick-start of the production for the second variant of cordless vacuum cleaner previously slated to start in Jan 2016, we remain sanguine on its earnings outlook for FY17-18. By end-March, the new lines to cater for the production of the said vacuum model should be ready and FY17 should see full-year earnings contributions from the two cordless vacuum model contracts secured last year. Key risks to our forecasts include: i) slower demand for consumer electronics due to weak consumer sentiment, and ii) loss of contracts from its key customer.

Maintain NEUTRAL. While we remain positive about SKP’s growth prospects, we think much of its near-term earnings prospects are already reflected in the share price. Maintain NEUTRAL, with an unchanged TP of MYR1.42. Our corroborative DCF-valuation is also supportive of our TP.

Financial Exhibits

All Is Good Despite Minor Delays

SWOT Analysis

Source: RHB Research - 22 Feb 2016