SKP Resources’ 1Q18 net profit within analysts’ expectations
KUCHING: SKP Resources Bhd’s ( SKP Resources) first quarter of 2018 (1Q18) net profit has come in within expectations, as was the absence of dividend.
SKP Resources’ decent 1Q18 net profit of RM33.4 million made up 25 per cent and 24 per cent of both the research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) and the consensus’ full-year estimates, respectively.
“As expected, no dividend was declared for the quarter under review,” Kenanga Research said. “Note that the group usually pays its final dividend by end of July or early August; with dividend payout of no less than 50 per cent as per its dividend policy.”
The research arm expects the group to pay dividend per share ( DPS) of 5.4 sen for financial year 2018 (FY18) based on a payout ratio of 51 per cent.
According to Kenanga Research, the orders for SKP Resources’ main revenue drivers - the beauty products and household products which will contribute at least RM1.7 billion-RM2 billion in FY18E to FY19E, are still intact.
While top line growth remains decent with a two-year revenue compound annual growth rate ( CAGR) of 16 per cent, the key potential catalyst in the medium term to the reasearch arm, was on SKP Resources’ potentially better profitability ( beyond the current level) which could be reaped from the group’s new printed circuit board assembly ( PCBA) services.
It noted that currently, the group is sourcing the PCB parts from other electronic manufacturing services ( EMS) players.
“To further improve its profitability as well as its capability as a complete integrated ‘one- stop’ EMS service provider, the group has on April 2017 announced its long-term strategic plans to expand into PCBA and other EMS related services,” Kenanga Research said.
In its last visit in July, the research arm was delighted to gather that the PBCA set-up will be up and running in 4Q of current year 2017 (4QCY17), which will utilise 25 per cent of space in the group’s new plant.
While the it had yet to account for the margins accretion from the PCBA services given the scarcity of details, Kenanga Research saw potential of margins improvement from its current conservative core net profit margin assumption of 5.6 per cent to 5.7 per cent, judging from the trend of other EMS players with in-house PCBA capability.
“On top of that, it is also noteworthy that with more complete integrated one-stop EMS services, this will enhance the group’s position in winning more contracts from its major customers,” the research arm added.
Kenanga Research thus made no changes to its FY18E to FY19E earnings for now as the research arm’s assumptions were still intact.
Hence, Kenanga Research maintained its ‘outperform’ recommendation.