Following our recent meeting with management, we remain upbeat about SKP’s outlook, underpinned by better order visibility from its key customer. On top of that, the group recently managed to secure 2 new customers, with an estimated total annual revenue to be around RM140.0mn. Meanwhile, the group has been receiving more business inquiries to provide assembly services thanks to trade diversion. Currently, the group is in the midst of discussion with a few prospective customers to fill up the extra floor capacity. Overall, we maintain a Buy call on SKP with an unchanged target price of RM1.43.

Better Order Visibility From Its Key Customer

Management guided that the order visibility from its key customer has improved since early of the year. The improvement was mainly driven by inventory replenishment and demand recovery for selected household products. Based on the latest internal sales forecasts, the management is confident that the group will be able to deliver a stronger earnings performance for FY25.

Managed to Secure 2 New Customers

Management also revealed that the group had secured 2 new customers from Europe and US in recent months. The total combined annual revenue is estimated to be around RM140.0mn. The commercial production for the new customers will kick-start soon. Although the actual earnings contribution from these 2 new customers are relatively small, we believe that a successful execution could lead to higher order volume later on.

Receiving More Business Inquiries Thanks to China Plus One Strategy

We expect the ongoing US-China trade tension will continue presenting excellent opportunities to SKP as the recent tariff rate increase from 25% to 50% on certain semiconductor imports from China has further prompted various companies to diversify their operations to other countries. Management guided that the group has been receiving more business inquiries to provide assembly services for household products. Currently, the new plant (Site 5) in Johor Bahru still has ample floor space to cater for new customers. Management also revealed that the group is currently in discussion with a few prospective customers to fill up the space.

Impact

Maintain FY25 to FY27 earnings forecasts

Valuation & Recommendation

No change to our target price of RM1.43, based on unchanged 15x CY25 earnings. Reiterate a Buy call on the stock.

Source: TA Research - 17 Jul 2024