Kenanga Research long term positive on SCGM
KUALA LUMPUR: Following an analyst briefing on SCGM Bhd (SCGM) post-announcement of its fourth quarter financial year 2017 (4QFY17), the research arm of Kenanga Investment Bank Bhd (Kenanga Research) remained long term positive on the food package manufacturer’s outlook.
In a company update, the research arm justified their stance by highlighting that growth for the company would be driven by increased demand for both food and beverage (F&B) packaging and plastic cups from the state-wide ban on polystyrene containers, and increased manufacturing capacity in FY18 from its newly rented factory in Klang Valley.
“SCGM announced its plan to rent a new 47,000 square feet factory in Telok Panglima Garang which will be its first factory in the Klang Valley, beginning July 2017, and will be running at full capacity by December 2017,” reported the research arm.
The capital expenditure (capex) for the factory has been guided to be around RM20 million and will be funded by the group through internally generated funds.
Based on the figures given by the research arm, the factory will produce 5,000 metric tonnes of product annually at full capacity and is expected to provide better efficiency in the longer run from reduce transportation costs due to its proximity to it’s the group’s existing Klang Valley market.
“All in, post the inclusion of this newly rented factory, we expected FY18-19E average capacity to increase to 39,200 to 49,900 MT per year from 36,000 to 44,900 MT per year,” said the research arm.
Alongside the new factory, the group is also currently constructing a second factory in Kulai that is anticipated to have an FY19 capex of RM54 million and is expected to increase topline growth in the company from increased capacity.
Despite the rosy outlook, the research arm has still decided to cut their FY18E net profit by 6 per cent while maintain its FY18E net profit due to compressions from higher raw material costs in FY18-19 to 16.2 to 17.9 per cent from 19.1 to 19.8 per cent.