Temporary shutdown to have little impact on SKP

The temporary shutdown of SKP’s operations in Johor Baru is expected to have a smallish impact on the FY21 earnings estimate.

PETALING JAYA: Analysts remain upbeat on SKP Resources Bhd as the temporary shutdown of its facility in Johor Baru is expected to have little impact on its financial year 2021 (FY21) earnings.

“We estimate the temporary shutdown of SKP’s operations in Johor Baru to have a smallish 4.6% impact on our FY21 earnings estimate, with the downside confined to the fourth quarter of FY21

“The impact would come mainly from the production shortfall and loss of efficiency, which we based on management’s estimates for a 3% loss of the group’s overall annual output.

“We have also taken into account costs for the related precautionary measures such as swab tests, quarantine, disinfection and sanitisation, which we assume at RM1mil or 0.8% of our FY21 earnings, ” said TA Securities.

Last Friday, SKP announced that it had voluntarily shut down the group’s operations in Johor Baru from Jan 16-29 as a health precautionary measure to facilitate Covid-19 screening of its employees.

This follows the recent announcement on the discovery of five of its production line employees there testing positive for Covid-19, with the contraction originating via a dormitory managed by a third-party service provider.

It is, however, business as usual for the group’s other operations in Batu Pahat, Bangi and Nilai.

CGS-CIMB estimated that the 3% loss in annual output translates to about RM80mil in revenue based on its previous FY21 revenue forecast of RM2.37bil.

“The loss of sales during the period could be partially offset by some deliveries of existing finished goods while its other manufacturing facilities remain operational at this juncture.

“Notwithstanding the plant closures, we gather that the order outlook is intact as end-demand and new product launches from its largest customer remain strong, ” it said.

Although CGS-CIMB cut its FY21 earnings per share forecast by 4.6% to factor in the loss of revenue while marginally adjusting its FY22-23 forecasts, it retained its “add” call on SKP with an unchanged target price at RM2.35.

Key re-rating catalysts for the stock include new product wins from its key customer and better-than-expected margins while a sharp slowdown in order flows from its key customer and prolonged plant closures due to the Covid-19 outbreak are seen as potential risks for the company.

Meanwhile, TA has also lowered its FY21 earnings estimates by 4.6% to RM121.9mil, and correspondingly, its target price has been downgraded to RM2.41 from RM2.45 previously.

However, it remained sanguine on SKP’s growth prospects and maintained its “buy” call on the counter, particularly with management reaffirming that contract manufacturing demand from its key customer for household electronics remains strong.

“Hence, we view any knee-jerk reaction to provide investors an even more attractive buying opportunity, ” it added.

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