KUALA LUMPUR: Affin Hwang research expects SLP Resources Bhd
to report decent earnings growth of 6.5% year-on-year on higher production capacity, low resin costs and a weak ringgit.
The research house maintained its hold call on the counter with an unchanged target price of RM1.30.
"Notwithstanding the 2.5% yoy drop in 1Q19 revenue, we expect SLP to deliver stronger sales growth in 2H19, due to robust demand from export markets (58% of 1Q19 revenue), a recovery in the domestic market, and capacity expansion (SLP is on track to increase its 2019 capacity by 18.5% to 32k MT/annum)," it said in a Friday note.
It added that growing demand for sustainable packaging materials offers new business opportunities for its in-house recyclable firms.
On the flip side, the backsheet business venture may face further delays due to stiff competition in the China diaper market.
Meanwhile, EBITDA margins are expected to improve in 2019E due to the weakening of the ringgit versus the US dollar, low resin cost and a higher margin sales mix.
However, Affin Hwang said this will not last last as it expects higher crude oil prices in 2H2019 and the ringgit to strengthen by end-2019.
