Stronger growth ahead for Lee Swee Kiat, says CIMB Research

KUALA LUMPUR: CIMB Equities Research remains positive on latex-foam products manufacturer Lee Swee Kiat’s (LSK) prospects after its recent meeting with the company.

The research house said on Wednesday LSK is on track to grow its production capacity by 50%-58% to 9,000-9,500 tonnes per annum by 2020F. Demand to be driven by export-oriented customers, i.e. from US.

“Maintain Add with a lower TP of RM1.45. This is now based on 14.8 times CY20F P/E, a 30% discount to the consumer sector average CY20F P/E of 21 times,” it said.

CIMB Research said in 4Q18F, it expects LSK to record net profit of RM3.1mil to RM3.3mil, which indicates on-quarter and on-year increases of 3%-9% and 10%-17%, respectively. 

This likely brought its full-year FY18 net profit to RM10mil to RM10.2mil (65.9% to 69.2% on-year), which is within the research house’s expectations. 

“Our forecasts of stronger 4Q18 results is based on the assumptions of: i) higher sales volume from growth in production volume (+50% on-year), and ii) low latex prices.

“Going into 2019, LSK will focus on improving operating efficiencies by increasing
automation. 

“In 1H19, the group will install its first robotic arm and a more advanced drying machine, which we believe could increase its overall efficiency by 20%-25%. In total, this should expand its overall production capacity by another 1,000 tonnes to 1,500 tonnes annually from FY19F onwards,” it said.