SCGM set to raise capacity for high-margin products

Kenanga Research believed that SCGM would focus on ramping up its utilisation and eventually increasing capacity for its high-margin products in FY22.

PETALING JAYA: Food packaging manufacturer SCGM Bhd’s recent financial results is a reasonable indication that the company is on track in pursuing its growth strategy.

It saw its net profit for the fourth quarter ended April 30, 2021, increase 11% year-on-year to RM7.6mil on higher revenue which also rose by 32.4% to RM65.7mil.

The improved performance was attributed to a favourable sales mix, together with reduced operating and interest expenses.

Its full year FY21 net profit was a record – coming in at RM33.6mil and almost double from the net profit it made, a year earlier.

Kenanga Research believed that SCGM would focus on ramping up its utilisation and eventually increasing capacity for its high-margin products in FY22.

The research house also raised its target price for the stock to RM3.02.

Some SCGM productsSome SCGM products

“Moving forward, we view the 60% workforce limit as merely a hiccup, as we foresee SCGM ramping up utilisation after the lockdowns are eased, given robust food and beverage packaging and face masks orders, driven by renewed lockdowns and resurgent Covid-19 cases, ” Kenanga said.

Bullish on the company, it said that while there has been a slowdown in its production due to the extended movement restrictions, the lockdowns and resurgent cases have actually been a blessing in disguise for SCGM.This is because they have at the same time boosted SCGM’s food and beverage packaging and personal protective equipment orders, namely higher-margin lunch boxes, food packaging for supermarkets and bakeries, as well as face masks.

“Therefore, we believe the slowdown in productivity is merely a hiccup, as we foresee SCGM running at an utilisation rate of 70%-75% after lockdowns are eased, ” the research house reiterated.

“In FY22, we believe that management will continue to focus on their high-margin products.”

To reduce dependency on labour, SCGM will also be commissioning new machines in the second half of the year, the research house noted.

Kenanga also said the risks to its call on the company include higher-than-expected resin cost, weaker-than-expected product demand, faster-than-expected decline in average selling prices, weaker foreign currency rates, and labour shortage.

SCGM has declared a fourth interim dividend of 1.7 sen per share in respect of FY21.

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