KUALA LUMPUR: SKP Resources Bhd is likely to experience strong earnings momentum as its order flow remains robust and most of its employees have been vaccinated, paving the way for full operations soon.
From its recent call with the company, RHB Research gathered that 70% of its workforce was fully vaccinated with most of the remaining workers having received their first dose. This may enable the company to operate at full capacity by late September.
This will be timely for SKP, an electronics manufacturing services company, to capture the increased order flow arising from the year-end festive demand and could propel its third quarter (Q3FY22) to a record high.
SKP saw a strong start for the current financial year with net profit in Q1 ended June 30, rising to RM32mil from RM10mil a year ago. Revenue for the quarter rose 29% year-on-year to RM515mil.
“We hosted a call with SKP and came away feeling more assured about its exciting growth prospects.
“Near-term earnings growth will be boosted by favourable seasonal demand, easing of production capacity limitation, and contribution of new production lines starting from Q4FY22,” RHB Research said in a report yesterday.SKP is scheduled to commence two new production lines by Q4FY22 and Q1FY23.
It is also embarking on another major expansion which could start construction by end-2021 and potentially lift total capacity by 40%, once completed.
RHB Research expected robust order flows – thanks to its key customer’s product innovation and ambitious growth target – would help with capacity utilisation.
“Following the surge in demand for consumer electronics on the back of stay-at-home practices globally, we are not overly concerned about a potential sharp slowdown.
“Essentially, we believe sales orders will remain robust underpinned by key customer’s product innovation as well as the affluent and discerning end consumer profile.
“In addition, the focus and strategy to roll out customised products to cater to the Asian markets should also drive sustainable growth, considering the relatively lower penetration rate in China as compared to the western countries,” it said.
Currently, SKP ships most of its manufactured output to China and has observed a strong growth rate.
Meanwhile, management has reiterated that the hike in raw material, freight and foreign exchange costs would not compress margins, given the cost pass through mechanism that it has in place.
Correspondingly, RHB Research has raised its FY23-24 earnings forecasts by about 14% to account for the robust job orders and sustainable margin trends per management guidance.
The brokerage kept its “buy” call on the stock with a higher target price of RM2.28 based on an unchanged 19 times 2022 price-earnings ratio.