• Upgrade to BUY (TP: RM0.78). Lee Swee Kiat Group (LSKG) 6MFY24 net profit of RM5.8mn was below both our and consensus expectation at 44% and 37% respectively. LSKG’s 2QFY24 headline profit declined by 23% YoY to RM2mn no thanks to impairment of property plant & equipment and Cuckoo receivables. We trimmed our forecast ascribe to higher raw material price (latex rubber) and lower demand expectation. However, we believe export sales to remain robust supported by full economic reopening and China trade diversion. Following price weaknesses, we upgrade LSKG to BUY but with lower TP of RM0.78 (from RM1.07) based on PER of 11x pegged to FY25 EPS of 7.1 sen.

• Key highlights. The centrifuged latex price YTD touched all-time high in 2Q24 where it recorded RM800/KG on 10th June 2024 caused by constraint supply of rubber production due to unfavourable weather.

• Earnings Revision. We tweak our earnings for FY24F/FY25F/FY26F by 11%/25%/31% to RM11.9mn/RM11.5mn/RM11.0mn as we revisit our domestic channel growth.

• Outlook. We expect the export segment to remain healthy propelled by full economic reopening post-pandemic, and China trade diversion. Nonetheless, we remain cautious on the high inflation and interest rates environment that which may dampen consumer spending.

Source: BIMB Securities Research - 28 Aug 2024