PETALING JAYA: Labour shortage may likely weigh down SCGM Bhd’s earnings potential, despite a resilient demand for its products.

       The food packaging manufacturer, whose earnings were below expectations in the first half ended Oct 31, 2021, could face a reduced sales volume due to the labour shortage.

       This would in turn affect SCGM’s earnings in the subsequent quarters, according to Kenanga Research.

       In a note yesterday, the research house said it has cut its core net profit forecast for financial year 2022 (FY22) by 5% to RM36.7mil, due to labour shortage and higher administrative costs.

       Revenue forecast for FY22, on the other hand, was slashed by 3% to RM283.6mil.

       SCGM products

       However, the earnings forecast for FY23 was maintained.

       It said resin prices had increased since July due to electricity disruption in China and the freight issue.

       “We believe SCGM can pass on the higher costs by raising average selling prices. Moving forward, SCGM will continue to focus on its food packaging segment to achieve a more favourable and higher-margin product mix.

       “We gathered that SCGM’s utilisation rate is at 65% to 70% (compared to 55% to 60% during the movement control order) to fulfil its backlog orders,” stated Kenanga Research.

       For the first half of FY22, SCGM’s core net profit of RM16.3mil represented only 42% of Kenanga Research’s full-year estimate.

       Despite recording a higher revenue year-on-year and a lower finance cost, SCGM’s bottom line was impacted by rising raw material costs and higher effective tax rate. As a result, the group failed to sustain margins in the first half.

       Nevertheless, SCGM’s dividend of 3.7 sen per share for the first six months was within expectation, at 46% of Kenanga Research’s FY22 dividend target of 8.1 sen.

       The research firm has maintained its “outperform” call on SCGM, albeit with a lowered target price of RM2.80 from RM2.97.

       “We believe SCGM deserves the valuation for resilient demand for its products and better product mix.

       “Risks to our call include higher-than-expected resin cost, weaker-than-expected product demand, weaker foreign currency rates and labour shortage,” it said.