SKP’s 9MFY24 results still in line despite 42 per cent decline

KUCHING: Plastic packaging manufacturer SKP Resources Bhd’s (SKP) first nine months of financial year 2024 (9MFY24) results are still within market estimates despite its net profit experiencing a 42 per cent year on year (y-o-y) decline to RM72.1 million.

In a results note, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) reported that the group’s 9MFY24 net profit of RM72.1 million was within expectations as it accounted for 81 and 77 per cent of theirs and consensus full-year earnings estimates, respectively.

During the period under review, the group’s 9MFY24 revenue fell by 30.9 per cent y-o-y to RM1.405 billion as its customers refrained from replenishing orders in response to a lacklustre consumer market.

Kenanga Research pointed out that while the decline was steep, it was expected as SKP’s management had cautioned earlier about their weakening loading volume.

“Inevitably, the group’s floor space was left operating below optimal level, resulting in the group recording a steeper 42 per cent decline in net profit,” said the research arm.

And looking ahead, Kenanga Rese believed the plastic packaging manufacturer was ‘not out of the woods yet’ as management has guided for challenging business landscape in the near to medium-term exacerbated by persistent inflationary pressure that has dampened consumer spending, especially on household products.

“While the decline in demand has inched towards its bottom, its customers’ loading volumes and forecasts have yet to show any significant signs of recovery,” said the research arm.

On a more positive note, SKP has guided that it will continue to work towards a leaner and more efficient operating structure to improve margins

“It is also mindful of its customer concentration risk and hence is seeking to diversify its customer base,” Kenanga Research added.

Overall, Kenanga research guides that they continue to like SKP as they believe it is a good proxy to one of its key customers – an innovative premium consumer electronics brand; its competitive edge due to its vertical integration; and its ability to consistently pass on higher production costs to its customers.

That said, the research arm cautions that they believe SKP will not be spared from the lull in the global consumer electronic market in the near-term.

For now, they maintain their ‘market Perform’ call on SKP with an unchanged target [price of RM0.85 that is based on an unchanged 15fold FY24F price earnings ratio (PER) which presents a circa 10 per cent to its peers’ forward mean.