Review

• SKP’s 9MFY24 net profit of RM72.1mn came within ours and consensus full-year estimates at 78.9% and 77.7% respectively.

• YoY, 9MFY24 net profit fell 42.0% to RM72.1mn as revenue was 30.9% lower at RM1,404.6mn. The weaker earnings performance was mainly attributed to lower sales orders as a result of weak sentiment in both domestic and international markets. Together with higher depreciation and amortisation costs, the net profit margin narrowed 1.0pp to 5.1%.

• QoQ, 3QFY24’s net profit dropped 13.4% to RM23.4mn as revenue was 12.8% lower at RM453.1mn. The weaker earnings were largely due to reduced orders from key customers. Despite a weaker quarter, the group managed to maintain a net profit margin of 5.2%, thanks to the implementation of various cost optimisation initiatives.

Outlook

• Despite market uncertainty remains, we remain sanguine on the group’s medium-to-longer term prospects, supported by its customers’ new model launches and product portfolio expansion, along with opportunities from the China Plus One strategy.

Impact

• Maintain FY24 to FY26 earnings forecasts.

Valuation & Recommendation

• We maintain our Hold recommendation on SKP with an unchanged TP of RM0.78 based on 12.0x CY24 EPS.

• Key downside risks include lower-than-expected utilisation and inability to secure new contract manufacturing jobs.

Source: TA Research - 27 Feb 2024