PETALING JAYA: Electrical and electronics plastics contract manufacturer SKP Resources Bhd
could see prolonged weakness in order visibility from its main customer due to weak consumer sentiment.
According to CGS-CIMB Research, SKP’s key customer contributed 75% to 80% of its annual revenues in the financial year 2021 (FY21) to FY23 and its channel checks suggest that “order visibility has dwindled noticeably on the back of inventory adjustments and weaker-than-expected end-consumer sentiment”.
“As such, the decline in the revenue from the key customer may be worse-than-expected for FY24.
“Given this development, we take the opportunity to cut our FY24-FY26 earnings per share (EPS) by 20.2% to 25.8% as we assume a steeper revenue decline of 30% from the key customer in FY24, from 16% previously,” said the research firm.
However, CGS-CIMB Research said order visibility may pick up by FY25 with the launch of new household care products.
Overall, it expects an EPS decline of 40.2% in FY24, before rebounding by 25.4% and 18.3% in FY25 and FY26, respectively.
The research firm reiterated its “add” call on the stock.
However, this is at a lower target price of 92 sen a share as valuations appear attractive, trading at below its eight-year average on both price-to-earnings and price-to-book value multiples.
CGS-CIMB Research said the share price could be supported by decent dividend yields of about 4% to 5% in FY24 to FY26 based on a 50% payout ratio.
