KUALA LUMPUR: SCGM Bhd
may need another six months before it sees more significant improvement in its earnings, says PublicInvest research.
It said the group should turn around in the final quarter as resin costs have been weakening since January 2019 and the migration process from the old plant has been completed.
The research house maintained its neutral rating on SCGM with a lower target price of RM1.05 from RM1.39 previously.
To recap, SCGM's margins have shrunk from 11.5% to only 3.9% due to resin cost, delays in migration to the new plant in Kulai and a slow pick-up in new orders in Kulai.
Resin cost, which makes up 60% to 65% of total operating cost, rose 10% year-on-year in 3QFY19.
"We understand that it has started softening since early-2019 in tandem with lower crude oil prices. As of March, resin cost has been range bound.
"On a positive note, the opening of a new PET (accounting for 50% of total resin input) plant by Petronas in Pasir Gudang is expected to give some price competition to the current sole supplier in Malaysia," said PublicInvest.
Meanwhile, SCGM yesterday announced that it has entered a memorandum of agreement with PT Harapan Infiniti Mulia to be the exclusive producer of its in-house Ecorasa brand.
The deal is expects to bring in US$2.1mil in lunch box sales over the next two years.
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