SKP Resources factory
KUALA LUMPUR: SKP Resources Bhd
's financial results came in within expectations as the group reported a Q1FY18 net profit of RM33.4mil, up 83% year-on-year, which made up 25% and 24% of Kenanga Research's and consensus estimates, respectively.
"We are expecting the group to pay dividend per share of 5.4 sen for FY18 based on a pay-out ratio of 51%. For FY17 dividends, recall that the group has on July 21,2017 announced a final single-tier DPS of 4.15 sen," it said.
Y-o-y, the first quarter of FY18 saw revenue soar 64% driven by the second tranch of household electrical appliances contracts and full contribution from the new revolutionary products.
"With the subsiding cost pressures (on the absence of last minute hiring of higher cost contract workers in 1Q17 to meet high orders) coupled with the continuous yield improvement on lower wastage, EBIT margin improved by 0.7ppts to 8.3%. With stable ETR, NP improved by 83%
(with NPM of 6.4%)," said the research house.
The orders for SKP Resources' main revenue drivers - beauty and household products, which will contribute at least RM1.7bil to RM2bil in FY18E-FY19E, are still intact.
The key potential catalyst in the medium term, according to Kenanga Research, is on its potentially better profitability which could be reaped from its new printed circuit board assembly (PCBA) services.
"To further improve its profitability as well as its capability as a complete integrated ‘one-stop’ EMS service provider, the group has on April 2017 announced its long-term strategic plans to expand into PCBA and other EMS related services. In our last visit in July, we were delighted to gather that the PBCA set-up will be up and running in 4QCY17, which will utilise 25% of space in its new plant," it said.
The research house sees potential of margins improvement from its current conservative CNP margin assumption of 5.6% to 5.7%, judging from other EMA players with in-house PCBA capability.
Kenanga Research also notes that the more complete integrated one-stop EMS services will aid the group in winning more contracts from its major customers.
The research house maintains its Outperform call on the counter, as well as its target price of RM1.60 based on an unchanged 13.5x FY19E price-earnings ratio.
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