PETALING JAYA: SLP Resources Bhd
’s growth prospects are expected to be supported by an uptick in orders and increased exports to overseas markets.
Kenanga Research said it came away from a post-results engagement with SLP feeling optimistic on its near-term outlook. The research house added the management had guided for a moderate improvement in business in financial year 2024 (FY24).
“This is driven primarily by increased exports to Japan and New Zealand, sustained packaging demand in Malaysia, and more orders for its MDO-PE film.
“It has seen a surge in orders especially for kitchen bags since December 2023, which they believe is likely to be sustained,” the research house said in a report yesterday.
Kenanga Research said kitchen bags accounted for 18% of the plastic packaging manufacturer’s total revenue in FY23.
At present, SLP’s utilisation stands at 58% (fourth quarter of FY23 at 52%), versus the optimal level of 70%.
“Meanwhile, we believe the improved topline performance will translate to better margins by virtue of economies of scale that will help to partially mitigate the elevated utility costs,” the research house said.
Kenanga Research said SLP is hopeful that it will soon secure another buyer for its fully recyclable MDO-PE film, which is a multinational Japanese converter in Thailand.
“It recently received a positive trial report from the customer, validating that its samples have met stringent qualification requirements (including drop test, seal test, puncture test).
“SLP is optimistic that it will secure more orders after the Hari Raya break, which will double its mono film plant utilisation rate to 40% from 20% currently,” the research house said.
Kenanga Research said the favourable response to SLP’s mono film could be attributed to the trend towards sustainable packaging, driven by among others, more stringent packaging waste regulations in Europe and Vietnam.
Moreover, the research house said SLP is also planning for RM20mil capital expenditure (capex) in FY24, marking its first major capital investment since FY19.
“The capex will go to a new MDO-PE line (with a monthly capacity of 230 MT) (RM10mil), which will make SLP one of the mono film giants in the region; and the acquisition of a new dormitory for foreign workers,” Kenanga Research said.
Kenanga Research maintained an “outperform” call on SLP with a target price of RM1.06.
The research house said it continues to like SLP for its product mix which focuses on high-margin, non-commoditised products such as kangaroo pouches and mono films, robust cash flows and a strong balance sheet (a net cash position).
This will enable consistent and generous dividend payments, as well as a prominent position in the regional mono film market which is driven by its fully recyclable MDO-PE film in response to growing demand for sustainable packaging solutions.
