PETALING JAYA: Manufacturer of flexible plastic packaging products and plastic films SLP Resources Bhd should be able to grow its revenue and preserve its margins with the introduction of several new products.
This is expected to help the company achieve better earnings, on top of the fact that the price of resin, a main raw material in its production process, is flattening.
Kenanga Research analysts, who visited SLP, said they were turning more bullish on the company as it has also been able to raise the average selling prices (ASPs) of its products to match increased costs of production.
“The company also has several new high-margin products in the pipeline, which we think will allow it to grow revenue while preserving margins, ” it told clients in a report.
According to the note, SLP has been able to raise its products’ ASPs by 10%-15% to match the higher resin costs.
Additionally, resin costs are starting to flatten as the company continues to raise ASPs, the research firm said.
“More importantly, SLP’s customers are accepting the higher ASPs, as there is generally a broad-based rise in the selling prices of plastic products.
“Relative to its peers, SLP is able to pass on more of the higher costs of garbage bags to Japanese customers, as it serves numerous small customers in Japan, versus the handful of large customers of its peers, ” Kenanga pointed out.
The research house said that since end-March, resin prices have fallen by 2% to 5%, showing signs of softening supply-demand dynamics.
“That said, resin prices are likely to remain steady for some time as the month-long disruption has left deep deficits throughout the global supply chain.”
It noted that SLP has several new products in the pipeline, one of which is medical device packaging, which had already begun production in February 2021.
“Management guided that the product, which commands above group’s average margin, is for a long-time customer and we believe that the product will be a new source of recurring revenue for SLP.” Currently, SLP’s gross margin is about 17% to 22%.
Furthermore, management has indicated that they are in discussions with a new customer to supply a new packaging product that will also fetch “superior” gross margins, Kenanga added.
For now, the research house is keeping its financial year 2021 (FY21) revenue estimate unchanged but reducing its FY22 revenue estimate as it said its previous estimate of RM200mil appears “too aggressive” relative to SLP’s expansion plans.