SLP Resources Bhd (SLP) is looking at a rather disappointing 9MFY23 results, which is due to be out next week in the absence of significant recovery in its margins amidst various global macro headwinds, Kenanga said.
In its Results Preview note today (Nov 2), the research house believes that SLP’s results may be below expectation.
“We cut our FY23-24F net profit forecasts by 9-8%, respectively, to reflect a more tepid margin recover and lower our TP by 6% to RM0.85 (from RM0.90).
“We also reduce our DDM-derived TP by 6% to RM0.85 (from RM0.90), as we tweak our FY23-24F dividend forecasts to 5.0 sen (from 5.5 sen). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” it said.
However, Kenanga maintains its MARKET PERFORM rating as he stock offers a decent dividend yield of 6%.
It continue to like SLP for its product mix which focuses on high margin, non-commoditized products such as kangaroo pouches and mono
films, robust cash flows and a strong balance sheet (a net cash position), enabling consistent and generous dividend payments.
“However, we are concerned over an extended slowdown in the global economy which will weigh down on SLP’s earnings,”
On the 9MFY23 results, Kenanga estimate that SLP’s 9MFY23 core net profit will come in at RM10 million to RM11 million, making up only 63% to 73% of our full-year forecast and the full-year consensus estimate.
“On one hand, we anticipate sustained resilience in the demand for its kitchen bags and garbage bags mainly sold to Japan, contributing
c.30% of its total revenue.
“This is primarily attributable to Japan’s moderate economic recovery and improved business sentiment. On the other hand, demand for its fashion bags is expected to remain subdued, largely due to softening consumer spending in Australia amidst high interest rates and inflation,” it said, adding that in FY22, Japan and Australia contributed to about 31% and 4% of SLP’s total sales, respectively.
The risks to its call include a prolonged global economic downturn leading to weak consumer demand for plastic packaging, a sharp rise
in resin prices, and adverse forex fluctuations.
