SKP Resources' new capacity expansion to spearhead growth – Free Malaysia Today

PETALING JAYA: Mercury Securities has issued a ‘buy’ call on integrated contract manufacturer SKP Resources Bhd with a target price (TP) of RM2, based on its attractive expansion plans.
“We recommend a buy on SKP Resources with a TP of RM2 based on FY24F earnings per share (EPS) of 13.8 sen and price-earnings ratio (PE) of 14.5x, in line with its peers’ average,” the research house said in a note.
“We like the stock for its attractive expansion plans and dividend payments. The target price represents a potential return of 20.5% over the current price (RM1.66),” it added.
Main Board listed SKP Resources is one of Malaysia’s largest and fastest growing integrated contract manufacturers, catering to the electrical and electronic (E&E), industrials, automotive, food and beverage industries.
Besides being ranked 46th in the latest Manufacturing Market Insider’s Top 50 Electronic Manufacturing Services (EMS) Providers in 2021, it was able to achieve stellar results with a four-year compound annual growth rate of 8.8% from FY2019 to FY2022 despite the Covid-19 pandemic.
The electronic manufacturing services provider achieved a record high profit in FY2022 due to robust sales and growth diversification across various industry segments namely EMS and non-EMS sectors.
“Our estimates assume H2 2023 to be stronger on the back of higher sales propelled by festive seasons and new product launchings, which is on track to achieve another record year,” Mercury Securities said.
The company posted a 16% increase in net profit of RM46.5 million in its second quarter ended Sept 30 (Q2 FY2023) from RM40.1 million in the same quarter a year ago. For the cumulative six months ended Sept 30, it posted a net profit of RM83 million compared to RM72.6 million a year earlier.
In FY2022, the company invested approximately RM94.39 million including the ongoing construction of a new multi-storey factory building (Plant 5, site 5) on a 6.4-acre plot of land in Johor Bahru, expected to be fully constructed by March next year.
“With the completion of plant 5, this will provide an additional floor space of 650,000 sq. ft. which is 50% more than its existing floor space,” it said.
The new plant will house new assembly lines and new printed circuit board assembly facilities to cater for the growth over the next three years.
The company also completed the acquisition of another plot of land in Johor Bahru (site 6) in April 2022, not far from site 5. The newly acquired site 6 spans 7.9 acres which will be utilised to cater for future growth and expansion.
It noted the company has a minimum dividend payout policy of 50%. A final single-tier dividend of 5.55 sen per ordinary share was declared in FY2022 which constitute approximately 50% of the group’s profit after tax (PAT).
Mercury Securities highlighted failure to secure orders from customers, and raw material shortages arising from supply chain disruptions as potential risk factors.
The company saw a change of guard recently when executive director Gan Poh San was redesignated as MD of the group, taking over from his father and major shareholder, Gan Kim Huat, who passed away recently.
The company’s 2020 annual report showed Poh San, 47, held a direct stake of 5% and an indirect stake of 16.36% of the group as of end-June.
At the mid-day close today, SKP Resources’ share price rose one sen to RM1.67, giving it a market capitalisation of RM2.61 billion.
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