SKP Resources - Chugging Along

Date: 
2024-02-27
Firm: 
KENANGA
Stock: 
Price Target: 
0.85
Price Call: 
HOLD
Last Price: 
0.905
Upside/Downside: 
-0.055 (6.08%)

SKPRES’s 9MFY24 met expectations. Its 9MFY24 net profit fell 42% on lower loading volume from its customer. SKPRES guided for a challenging business environment. It continues to work towards a lean and highly efficient operating structure. It is also seeking to diversify its customer base. We keep our forecasts, TP of RM0.85 and MARKET PERFORM call.

Within expectations. SKPRES’s 9MFY24 net profit of RM72.1m (- 42% YoY) was within expectations, accounting for 81% and 77% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, SKPRES’s 9MFY24 revenue saw a 30.9% decline, which was well anticipated as the group had earlier cautioned about weakening loading volume from its customers. Its customers refrained from replenishing orders in response to a lacklustre consumer market. Inevitably, the group’s floor space was left operating below optimal level, resulting in the group recording a steeper 42% decline in net profit.

Not out of the woods yet. SKPRES guided for a challenging business landscape moving forward due to persistent inflationary pressure which has dampened consumer spending, particularly on household products. While the decline in demand has inched towards its bottom, its customers’ loading volumes and forecasts have yet to show any significant signs of recovery. Meanwhile, the group will continue to work towards a lean and highly efficient operating structure. It is also mindful of its customer concentration risk and hence is seeking to diversify its customer base.

Forecasts. Maintained

Valuations. We keep our TP of RM 0.85 based on an unchanged 15x FY24F PER, representing c.10% discount to peers’ forward mean. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like SKPRES as: (i) it is a good proxy to an innovative premium consumer electronics brand, (ii) it has an edge over its peers given its vertical integration, and (iii) it has been able to consistently pass on higher production cost to its customers. However, over the immediate term, it is not spared the lull in the global consumer electronics market amidst high inflation and economic uncertainties. Maintain MARKET PERFORM.

Risks to our call include: (i) new products hitting mass production stage slower-than-expected, (ii) a weaker recovery in order flows, and (iii) slower-than-expected onboarding of new customers.

Source: Kenanga Research - 27 Feb 2024

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