More positive view on SKP Resources’ medium-term prospects

KUALA LUMPUR: Following a recent plant visit at SKP Resources Bhd (SKP Resources), the research arm of Kenanga Investment Bank Bhd (Kenanga Research) feels more positive on the group’s medium-term prospect.

Kenanga Research recalled that SKP Resources has been struck by a series of unfortunate events in financial year 2017 (FY17), namely short-term cost pressures resulting from the hiring of higher-cost contract workers as a result of policy changes as well teething issue of new products ramp-up.

While all these unforeseen events have reset the group’s profitability to a new low in the first nine months of 2017 (9M17) (at circa five per cent), the group managed to strike back with a swift improvement with the last quarterly results coming in well within the research arm’s, and the consensus, forecasts, alongside margin improvement.

“With the labour issues being resolved coupled with better operational efficiency, we believe the group’s profitability could get back to the above six per cent mark,” it said. Kenanga Research gathered that orders for SKP Resources’ main revenue drivers- the box-built products which will contribute at least RM1.7 billion to RM2 billion in FY18-FY19, are still intact.

While top-line growth remains decent with a two-year revenue compound annual growth rate (CAGR) of 16 per cent – mainly from the base case assumption of the total announced RM1.1 billion contracts – the research arm believed the key potential catalyst in the medium term is potentially better profitability which could be reaped from the group’s new printed circuit board assembly (PCBA) services.

“Note that currently, the group is sourcing the PCB parts from the other suppliers,” Kenanga Research said. The research arm added that to further improve SKP Resources’ profitability as well as its capability as a complete integrated ‘one-stop’ electronic manufacturing services (EMS) service provider, the group had on April 2017 announced its long-term strategic plans to expand into PCBA and other EMS related services.

“During our recent visit, we were delighted to gather that the PBCA set-up will be up and running in the fourth quarter of current year 2017 (4QCY17), which will utilise 25 per cent space in its new plant,” Kenanga Research said.