SLP Resources Bhd’s (SLP) FY24F earnings growth will be driven by increased sales of its MDO-PE film in Southeast Asia and the introduction of new products in the Japanese market but post-results, Kenanga Research is still feeling cautious on its outlook.
“In response to the current soft market, intensifying competition and lower resin prices, SLP has adjusted down its average selling price (ASP),” it said in its Company Update note today (Nov 17).
The research house has keeps its MARKET PERFORM call and its FY23F net profit but cut its FY24F earnings forecast by 4% to account for persistent cost pressure.
“However, we keep our FY23-24 annual dividend forecast of 5 sen each, considering the company’s strong net cash position of RM81 million.
“Hence, we maintain our DDM-derived TP of 85 sen (CAPM: 7.9%, TG: 2%), with no adjustment based on our 3-star ESG rating,” it said.
Kenanga said it still feeling cautious on its outlook due to price pressure.
“In response to the current soft market, intensifying competition and lower resin prices, SLP has adjusted down its ASP,” it said.
“On a brighter note, this has made SLP’s products more appealing to its Japanese customers who are struggling to cope with high import costs due to the weak yen.
“In FY22, Japan accounted for 31% of SLP’s total sales. On a more cautious note, this means SLP will not be able to fully pass on the higher labour and energy costs to its customers,” it added.
The research house noted that SLP is hopeful for improved sales in FY24 (which is consistent with our assumption) primarily driven by increased demand for its fully recyclable MDO-PE film in Southeast Asia as well as the introduction of new products in the Japanese market.
“It is hopeful for its utilisation to therefore rise from the current 50% to more than 55% by mid-2024 (which is still at a distance away from the optimal level of 75%-80%).
“There is also a growing interest in its MDO-PE film, known for its sustainable and fully recyclable packaging attributes, as reflected in increased customer enquiries and requests for sample testing from some overseas buyers.”
It in is the view that the outlook for the plastic packaging industry is weighed down by the global economic slowdown, and as such, it expect a muted 2HCY23 for players.
“We continue to like SLP for its product mix which focuses on high margin, non-commoditized products such as kangaroo pouches and mono films, and robust cash flows and a strong balance sheet.
“On the other hand, SLP will not be spared weak demand for plastic packaging amidst a global economic slowdown,” Kenanga added.
