Profitable times ahead for SCGM from strong face mask, F&B demand

KUALA LUMPUR: SCGM Bhd (SCGM) is expected to record profitable quarters ahead, driven by strong demand for face masks and its food and beverages (F&B) products.

Kenanga Investment Bank Bhd’s research team (Kenanga Research) in a report saw that in the first quarter of the financial year 2021 (1QFY21), SCGM’s quarter-on-quarter (q-o-q) topline was up 15 per cent.

This was mainly thanks to increased manpower utilisation to 100 per cent from May 2020 onwards under the CMCO, (compared with 50 per cent manpower during the MCO from March to April 2020) and the commencement of face masks sales in May 2020, which contributed positively to 1QFY21 revenue.

As a result, it pointed out SCGM’s core net profit (CNP) was up by 19 per cent on the back of better earnings before interest and tax (EBIT) margin of 16.8 per cent (compared with 13.9 per cent) due to improved sales mix and lower resin costs.

On a year-on-year (y-o-y) basis, its year-to-date (YTD) top line was also up three per cent on higher export sales while its CNP surged 285 per cent on better margin (10.4 percentage points) on favourable product mix and reduced resin prices.

“SCGM will focus on increasing sales of F&B packaging which is its primary target and has introduced a face shield mask for medical personnel since February 2020.

“The group will be ramping up its face mask production with the latest acquisition of two units of face mask production machines in August. Additionally, the group will be working on improving operational efficiency through increased automation to achieve better economies of scale from its new factory, and improve product margins via more customisable as well as higher margin products going forward,” Kenanga Research said.

Based on its improving outlook, the research team said it increased its FY21 and FY22 CNP forecast to RM35.3 million and RM42.8 million (by 13 and 11 per cent), from increased sales of face mask products from two additional machines and better product mix as face mask should be able to command higher margins compared with existing products.

Kenanga Research also maintained its ‘market perform’ rating on the stock.

It explained: “Given strong expectations of profitable quarters going forward on stronger margins from its face mask business, and stronger demand for its F&B products which remains a formidable segment during the Covid-19 pandemic, we are comfortable with our valuations for now.”