KUALA LUMPUR: PublicInvest Research maintained its outperform call on SCGM Bhd
with a lower target price of RM2.47 from RM3.02 previously on weaker-than-expected earnings results.
The research firm said the results were due to a substantial increase in operating cost, up 30.9% on year, which outweighed a 26.4% increase in sales.
"Stripping out the exceptional items, the Group’s core earnings slipped 6.5% YoY to RM5.8m, mainly dragged by increased resin prices and higher depreciation charges. Gross earnings margin weakened from 13.9% in 3QFY17 to 10.3%, which we attribute to a substantial increase in resin cost."
Revenue for 3QFY18 climbed 16.3% on year to RM53.4mil on the back of better plastic packaging product sales from local demand while the export market also grew.
According to PublicInvest Research, construction of SCGM's new factory in Sengkuang, Kulai is on track and management expects to see the completion of the construction by April 2018, and targets to begin operation by December 2018.
"The factory will house new state-of-the-art production and warehouse facilities, which will streamline the manufacturing processes.
"The production capacity will also improve significantly to keep up with the increasing demand in the future. The Group plans to allocate more resources in its sales and customer service team to further boost its local and overseas sales.
"Meanwhile, it also plans to develop a new range of environmentally friendly products to address the growing demands for sustainable packaging practices."