SKP to have robust demand on electronics boom during pandemic
08 Sep 2021
SKP Resources Bhd has a solid demand outlook as consumer electronics have grown during lockdowns and year-end festivities are anticipated to further drive volume.
RHB Investment Bank Bhd (RHB Research) analyst Soong Wei Siang said the near-term earnings growth would be boosted by favourable seasonal demand, easing of production capacity limitation and contribution of new production lines starting in the fourth quarter of the financial year 2022 (4Q22).
“Beyond that, we expect the order flow to remain robust, thanks to its key customer’s product innovation and ambitious growth target,” Soong wrote in a research report yesterday.
He noted that SKP has achieved 97% of its workforce taking the second dose of vaccine and 70% is fully vaccinated, which allows the company to operate at full capacity latest by late September.
The analyst said it will be timely for SKP to capture the increased order flow arising from the year-end festive demand and could propel 3Q22 financial performance to a record high.
RHB Research has maintained ‘Buy’ for SKP with a new target price of RM2.28 from RM2.05, or 25% upside and circa 4% financial year 2023 (FY23) (March) yield.
The investment bank raised FY23-FY24 earnings by about 14%, to account for the robust job orders and sustainable margin trends per management guidance.
Soong also noted that SKP is scheduled to commence two new production lines by 4Q22 and 1Q23.
He said the electrical and electronics (E&E) plastics manufacturer is also embarking on another major expansion, which could start construction by year-end and potentially lift total capacity by around 40%.
He added that this will further stimulate the group’s earnings growth, given that the new product tendering or bidding should be called by its key customer by year-end.
Following the surge in demand for consumer electronics amid the stay-at-home norms, he said the research house is not overly concerned about a potential sharp slowdown due to normalisation.
“Essentially, we believe sales orders will remain robust underpinned by key customer’s product innovation as well as the affluent and discerning end consumer profile.
“In addition, the focus and strategy to roll out customised products to cater to the Asian markets should also drive sustainable growth, considering the relatively lower penetration rate, for example, in China, as compared to the Western countries,” Soong said.
He further said that SKP currently ships most of its manufactured output to China, and has observed a strong growth rate.
He said downside risks include major supply chain disruptions and ceding market share to competitors.
SKP shares ended 2.2% higher to RM1.86 yesterday, valuing the company RM2.91 billion.
Source: The Malaysian Reserve