PETALING JAYA: Heightened competition will continue to weigh down on SLP Resources Bhd
, whose earnings for the nine-months ended Sept 30 came in below brokerages’ expectations.
Turnover for the period recorded a modest 1% increase to RM121mil due to weaker third quarter (3Q24) revenue and margins as the ringgit strengthened during the quarter.
Moreover, higher-cost resin bought at a less favourable exchange rate had also squeezed 3Q24 margins, said Kenanga Research.
“However, group core net profit grew 14% year-on-year thanks to tax reinvestment allowances in 3Q24 and stronger exports to Japan, which may persist as the year-end holiday season boosts tourism and consumption.”
Kenanga Research said it was cutting its financial year 2024 (FY24) and FY25 earnings forecasts by 8% each, plus the stock’s target price by 5% to RM1 (from RM1.05).
“But we maintain our “outperform” call, supported by attractive dividend yields of more than 5%.”
The research firm expects modest recovery in demand for SLP’s plastic packaging products, driven by Japanese orders as their tourism sector boosted consumption.
The Japanese market accounts for 30% to 40% of SLP’s total plastic packaging sales, particularly in kitchen and garbage bags, due to their superior quality and adherence to sustainability standards through down-gauging technology.
“SLP remains committed to premium offerings, such as the fully recyclable MDO-PE film, positioning itself to capitalise on the shift toward sustainable packaging.
The utilisation rate for its MDO-PE film has risen to over 30% (from 20% in 1Q24 of 2024) with more inquiries from domestic and Asean markets.
“However, we expect cost pressures from higher utility, logistics cost and minimum wages to continue, potentially weighing on margins through 4Q24 and FY25, though these may be partially offset by labour automation and cost pass-through to customers.”
The research firm noted that the installation of a new machine from Europe, set for 4Q24, will enhance the company’s capabilities in producing flexible, sustainable packaging.
Meanwhile, Hong Leong Investment Bank (HLIB) Research has downgraded the stock from a “hold” to “sell.”
“Post earnings adjustment and rolling our valuation year to FY25, we lower our target price to RM0.73 (from RM0.87), based on a 14.5 times price-earnings tagged to FY25 earnings per share.
“With heightened competition in the local market and a tepid export market sales outlook, SLP’s earnings recovery is expected to be capped,” said HLIB Research in a report.
