Kenanga Research has reiterated its “OUTPERFORM” call SLP Resources Bhd for with the new trading price of RM1.18 (from RM1.14), as it rolls forward its valuation to FY22E EPS of 7.1 sen, with an ascribed forward PER of 16.6x, which is -0.5SD to its 5-year mean of 20x.
The investment bank maintains its valuation to reflect SLP’s lower utilization rate compared to its peers.
It says that it remains optimistic about the resilient demand for SLP’s flexible packaging products, and its improving product mix.
On the outlook for SLP’s ability, it says that the economy reopens, Kenanga remains optimistic on SLP’s ability to fulfil the strong demand for its products, maintain elevated ASPs on higher resin prices in 2HCY21, and further ramp-up of utilization rate which stood at 60-65% (vs. 40-45% during lockdown, and 35% in the 3QFY21).
Recently, resin prices have risen to the peak level seen in March 2021, and we expect ASPs will remain elevated. “The investment house assumes that the increase in ASPs will allow SLP to maintain its superior margins in the subsequent quarters while resin prices fluctuate,” it says.