SKP Resources - Poised for growth

INVESTMENT MERIT

• 19.5% revenue CAGR since 2007.  The group's revenue has grown significantly in the past five years, surging to RM414.8m in FY12 from RM170.1 in FY07. Its profitability has been equally as impressive, growing at a 18% CAGR over the same period. The stellar top line and bottom line growth rates were due particularly to SKP entering into a contract with Dyson for the manufacturing and supply of Dyson's products in 4QCY09, to which Dyson now accounts for 55% of SKP's total revenue.

• Leveraging on Dyson's maiden foray into China. Having now been appointed as one of Dyson's tier 1 manufacturers in Malaysia, SKP stands to benefit from Dyson's official launch in China this coming November. We believe that with SKP's specialty full service engineering consultation and expanding capacity, the group will be well placed to secure larger contracts from China going forward. 

• Dividends galore! SKP has been paying a minimum of 15% earnings as dividends for the past 5 years. In February 2012, the group subsequently adopted a 50% dividend payout policy. Based on our projected FY13 net profit of RM44m, this represents a hefty 7.1% dividend yield or 2.4 sen . The group also has a strong clean balance sheet in addition to its large cash pile of RM71m (7.9 sen cash per share) which is more than sufficient to fund the RM20m-25m capex in the current financial year. 

• Re-rating catalyst. At the current share price of RM0.345, SKP is trading at 7.3x FY13 projected earnings. We  believe the share price should trade closer to RM0.390, which represents a FY13 PER of 8.0x given its strong revenue generating capabilities/dividend policy. This is conservative as opposed to the consensus valuation price of RM0.540.

SWOT ANALYSIS

• Strengths:  Almost 100% raw material and currency are on a pass-though mechanism, which protects SKP from fluctuations. Full turn-key project management capabilities and speciality skill sets also allows SKP superior client retention.

• Weaknesses: Heavy dependence on a single client.

• Opportunities:  Ability to leverage on Dyson’s maiden foray into China. The current capacity utilisation of 75% suggests  that SKP has rooms to grow.

• Threats: Rampant counterfeit of Dyson's products in China and a slowing global economy.

TECHNICALS

• Resistance: RM0.36 (R1), RM0.38 (R2)

• Support: RM0.33 (S1), RM0.315 (S2)

• Comments:  SKP’s share price has been stuck in rangebound mode since the start of  the year, forming a trading channel in the meantime. A breakout in either direction should offer more clarity but until then, no action should be taken from a technical standpoint.

BUSINESS OVERVIEW

• SKP Resources Bhd primarily manufactures plastic parts and components, makes precision molds, sub-assembles electronic and electrical equipment and other secondary processes. It has three main subsidiaries; SKP, GHI and SPI. SKP has been manufacturing plastic injection moulded parts and components for the electronic and electrical products industry since 1994. Goodhart Industries (GHI), which enhances the range of plastic injection moulded parts produced by the group, focuses on precision engineering plastics injection moulding and “big tonnage” injection moulding. The group is now Malaysia’s leading local One-Stop Solution Centre which also caters to a global base of clients. Its portfolio of clients include Dyson, Toshiba, Sony, Pioneer and more. 

GEOGRAPHICAL SEGMENTS

• Services provided:  New product development/ program management, full service engineering consultation, mould design and fabrication, close tolerance plastic injection, advance secondary process operation, component assembly, contract manufacturing/box built 

• Production Breakdown

• Injection molding operation:  Precision injection molding, gas assist molding, high speed thin wall molding, auto insert molding, in mould label molding, e mold, heating and cooling, double injection

• Perfect Finish:  Spray painting, automated multi colour tempo printing facilities, tempo printing for profile surfaces, hot stamping, untrasonic welding, heat staking, silk screen printing.

Source: Kenanga