SLP Resources to solve labour shortage issue

KUALA LUMPUR: SLP Resources Bhd’s utilisation rate is set to recover in the second half of this year after it was affected by the labour shortage situation in the country.

According to HLIB Research, the company will see some recovery because more foreign workers who will be brought into the country soon.

“The company’s second quarter’s utilisation rate remained at a subdued level of 49.5% compared with 54% in the first quarter due to the ongoing labour shortage.

“We gather that SLP’S worker numbers has plunged to 260 from 407 workers before the pandemic struck. The group has brought in 14 foreign workers from the first round of recruitment when it applied for 105 workers.

“The second round of recruitment, which management has applied for 120 workers, and is believed to have a higher acceptance rate and they are expected to arrive by the end of next month,” it added.

On a related matter, HLIB Research said the company would allocate Rm1.2mil to automate five unit converting lines to reduce labour reliance.

“Generally, five manually-operated converting lines will require seven workers to operate. With the help of automation, a maximum of three workers are needed to function the five automated converting lines,” the research house said.

“In addition, automating the converting line is expected to lift the group’s efficiency and output yield, given the lower operating downtimes,” it added.

HLIB Research said it has cut its financial year 2022 (FY22) earnings by 9% with a lower utilisation rate assumption of 55% while keeping FY23 and FY24 assumptions and earnings unchanged.

This is due to the slower than expected foreign workers, it said.

It maintained its “buy” call on the counter, with a target price of 97 sen based on 14.5 times price to earnings ratio (PER) of FY23’S forecast earnings.

“This is in line with its five year historical mean PER. We do deem SLP a good dividend stock in current macroeconomic conditions considering its uninterrupted dividend track record with a a forecast yield of 6.8% in FY23,” it said.

HLIB Research also noted product sales from the company’s household segment – kitchen bag and hygiene segment – film for diapers have remained resilient, while garbage bag sales had seen a slowdown given relatively elastic demand.

The research house said that sales from the medical segment which provides superior margins, and this has gained traction.