Better quarters ahead for SKP Resources


RHB Research viewed electronic manufacturing services (EMS) as one of the more resilient industries under the current lockdown environment, thanks to steady global demand and the cost pass-through mechanism, which should mitigate any rise in production costs.

PETALING JAYA: SKP Resources Bhd’s upcoming first-quarter (Q1) results for the financial year ending March 31, 2022 (FY22) are expected to meet the estimates, which reflects on the group’s healthy top-line growth.

RHB Research in its latest report described SKP as a safer bet amid the pandemic. The research house viewed electronic manufacturing services (EMS) as one of the more resilient industries under the current lockdown environment, thanks to steady global demand and the cost pass-through mechanism, which should mitigate any rise in production costs.

SKP is scheduled to release its Q1 results on Aug 30.

RHB Research expects the group’s quarterly sales and profit to improve significantly year-on-year from the low base in Q1 of FY21 that was affected by the first movement control order.

Quarter-on-quarter, sales in Q1 should normalise from the seasonally weaker Q4 of FY21, but the bottomline growth could be flattish as “the Q4 of FY21 earnings incorporated some one-off margin boosters and relatively low effective tax rates,” added the research house.

The research firm noted that seasonally, EMS players tend to enjoy increased order volumes during the second half of the calendar year due to the year-end festive demand across key markets.

“We understand there is no exception this year, based on the flow of orders the company has received. However, the EMS players including SKP may not be able to reap the full benefits this round, especially if lockdown restrictions are to be further extended,” it said.

To minimise the earnings downside, the research house believes that SKP would focus on making the best out of its restricted workforce capacity, managing supply chain disruptions, and protecting its workers from pandemic-related risks via the tight implementation of standard operating procedures and vaccinations.

Notwithstanding the near-term challenges, RHB Research also believes that SKP’s growth prospects and outlook remain promising.

SKP is also scheduled to start another two new production lines by end-2021 and the first quarter next year. “We understand both lines will be housed in a newly leased plant, and SKP is embarking on another major expansion which could start construction by this year that can potentially lift its total capacity by about 40% once completed,” said the research house.

This has showcased SKP’s optimism on the continuation of order flows moving forward, fuelled by its major customer’s product innovation and ambitious growth targets. RHB Research is maintaining a “buy” call on SKP with a new target price of RM2.05 from RM1.93 previously. However, the downside risks to its recommendation include major supply chain disruptions and ceding market share to competitors.

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