SLP Resources Berhad’s first-half earnings came in broadly within expectations, with stronger margins driven by higher selling prices offsetting weaker sales volumes, according to Kenanga Research.
The research house maintained its “Outperform” call on the plastic packaging manufacturer with an unchanged target price of 90 sen, citing resilient profitability, a strong balance sheet and promising growth prospects in higher-margin medical device components.
SLP posted a 1HFY26 net profit of RM8.8 million, representing 43% of Kenanga’s full-year earnings forecast. The research house said the results were largely in line with expectations as it anticipates a stronger performance in the second half of the financial year.
The group also declared an interim dividend of 1.25 sen per share, bringing year-to-date dividends to 2.25 sen, which is on track to meet Kenanga’s full-year dividend forecast of 4.8 sen per share.
Revenue declines as stricter credit controls weigh on sales
Revenue for the first half declined 16% year-on-year, primarily due to lower trading activities and weaker domestic sales after the company tightened its credit control policies by limiting orders from customers with outstanding payments.
Despite the softer top line, core net profit surged 73% year-on-year, supported by higher average selling prices (ASPs) following the sharp increase in resin and crude oil prices triggered by the escalation of conflict in the Middle East in late February.
On a quarter-on-quarter basis, revenue edged up just 2%, while net profit jumped 144%, reflecting improved margins rather than stronger sales volumes.
Kenanga attributed the earnings improvement to an approximately 20% increase in ASPs during the quarter, coupled with favourable foreign exchange movements, with the average US dollar-ringgit exchange rate at RM4.00 compared with RM3.07 in the preceding quarter.
The research house noted that, due to an estimated two-month lag in passing higher resin costs to customers, SLP is expected to continue benefiting from elevated selling prices into the third quarter.
By the end of the quarter, the company had strengthened its financial position with a net cash balance of RM88.3 million, up from RM79.5 million in the previous quarter.
Higher margins expected to continue
Looking ahead, Kenanga expects SLP’s profitability to remain resilient in the near term despite continued competition in Malaysia’s plastic packaging market.
The research house believes margins will continue to benefit from higher resin-linked selling prices, gains from lower-cost inventory purchased before raw material prices increased, and an expected recovery in global demand following a weak FY2025 for the packaging sector.
Kenanga forecasts Brent crude oil prices to average US$80 per barrel in 2026 and US$74 per barrel in 2027, suggesting resin prices are unlikely to return to pre-conflict levels even if geopolitical tensions ease.
The research house added that SLP is well positioned to manage raw material supply risks, supported by its diversified global sourcing network and strong cash reserves.
Medical components offer long-term growth catalyst
Beyond its core packaging business, Kenanga sees significant earnings upside from SLP’s expansion into medical-related components and devices, which typically command higher profit margins.
The company is currently developing medical components for several international customers, with Kenanga already incorporating part of the anticipated contribution into its FY2026 earnings projections.
Meanwhile, Japan is expected to remain SLP’s largest export destination, accounting for more than 40% of its plastic packaging sales.
Positive outlook maintained
Kenanga left its earnings forecasts unchanged and reiterated its 90 sen target price, based on a dividend discount model.
The research house said it continues to favour SLP for its focus on higher-margin specialty packaging products such as kangaroo pouches and mono films, strong cash generation and net cash position, consistent dividend-paying capability, and expanding presence in the higher-value medical components segment.
However, it cautioned that weaker consumer demand for plastic packaging and heightened foreign exchange volatility remain the key risks to its investment thesis.
