SLP Resources Berhad’s (SLP) 1QFY24 earning’s insights saw it’s 1QFY23 core net profit soaring 64% on an improved product mix.
Kenaga Investment Bank’s Results Note today (May 6) said they expect sustained recovery driven by the export of kitchen bags and garbage bags to Japan. Kenanga raised their FY24F and FY25F earnings forecasts by 13% and 12%, respectively, lifted their TP by 10% to RM1.16 (from RM1.06) and maintain our OUTPERFORM call.
SLP’s 1QFY24 core net profit of RM4.7m beat expectations, coming in at 29% and 28% of full-year forecast and the consensus full-year estimate, respectively. The key variance against Kenanga’s forecast came largely from stronger-than-expected margins. It declared an interim dividend of 1 sen, on track to meet our full-year forecast of 6 sen.
YoY, its 1QFY24 revenue inched up 1% as higher sales to Japan (+38%) especially for its kitchen bags and garbage bags, more than cushioned weaker sales locally (-11%) and to Australia (-53%). In FY23, Japan, Malaysia and Australia contributed 29%, 65% and 3% of SLP’s total sales, respectively.
However, its core net profit surged by a much sharper 64% thanks to: (i) a better product mix, with a greater proportion of higher-margin manufacturing sales vs. low-margin trading of resins, and (ii) improved economies of scale on a higher production volume. In FY23, manufacturing and trading of resins accounted for 62% and 38% of its FY23 total revenue, respectively.
QoQ, its 1QFY24 turnover declined 5% due to softer domestic sales (- 13% QoQ), Kenanga believes a certain local players sought to gain market share at the expense of selling prices. Nonetheless, its core net profit more than doubled on improved economies of scale on a higher utilisation rate of about 60% (from 52% in 4QFY23).
Kenanga expects sustained recovery in demand for its plastic packaging products, especially with a strong offtake from the Japanese market, resulting in higher production, utilisation and hence operational efficiency. A booming tourism industry in Japan on the back of a weak Yen is boosting demand for SLP’s kitchen bags and garbage bags in that market. SLP remains focused on premium products like the MDO-PE film (fully recyclable mono film) to ride on the adoption of sustainable packaging globally. By end 2024, Kenanga estimates that MDO-PE production capacity will make up about 25% of its total production capacity.
