4Q a beat on higher cost efficiencies
? FY3/22 core EPS came in above expectations due to operational efficiencies.
? We estimate FY22-25F core EPS CAGR of 12%, owing to its robust order
flows outlook, with new product models in the pipeline for FY23F.
? Reiterate Add with a lower TP of RM1.89 (14.3x CY23F P/E). SKP trades at
an attractive 12.3x/10.8x FY23/24F P/E, more than 2 s.d. below mean.
FY3/22 core EPS a beat owing to cost efficiencies
SKP Resources (SKP) recorded FY3/22 core net profit growth of 17.5% yoy to a record
RM166.3m (excluding inventory provisions, PPE and investment property disposal gains
and forex gains). This made up 106%/107% of our/Bloomberg consensus forecasts. We
deem this to be above expectations, due mainly to higher operating margins as a result of
higher cost efficiencies and economies of scale as well as lower effective tax rates. In
addition to cost efficiencies, we reckon SKP benefitted from higher contribution from its
printed circuit board assembly (PCBA) operations, which contributed to the 1.3%-pt
EBITDA margin expansion in FY22.
Record quarter owing to sustained high operating margins
SKP reported 39.7% yoy revenue growth in 4QFY22, owing to robust order flows from its
key customer. This enabled SKP to book a record high quarterly core net profit of
RM48.4m. On a qoq basis, revenue fell 14% due to fewer working days. Nevertheless,
SKP still registered qoq core net profit growth of 4.6% due to i) higher cost efficiencies
and PCBA contribution, and ii) lower effective tax rates from reinvestment allowances
arising from the acquisition of PPE. We expect SKP to record flattish qoq growth for
1QFY23F due to fewer working days from the Raya festivities and potential disruptions
from the various lockdowns in China. Nonetheless, we expect the sales recovery to be
relatively swift in 2QFY23F onwards on the back of strong order traction from its key
customer, supported by a ramp-up in production for new product models. This, coupled
with margin expansion from higher insourcing of PCBA, underpins our 12.3% FY22-25F
core EPS CAGR forecast for SKP.
Reiterate Add with a lower TP of RM1.89
We conservatively lower our FY23-24F EPS forecasts to reflect supply chain disruptions
from component shortages and a more moderate sales recovery and introduce FY25
forecasts. We retain our Add call but cut our TP to RM1.89 as we lower our valuation
basis to 14.3x CY23F P/E (vs. 15.6x previously), at 1 s.d. below its 5-year historical mean
P/E, in view of the weaker sentiment in the global tech sector in a rising interest rate
environment as well as elevated concerns over ESG risks and supply chain disruptions in
the EMS sector. We like SKP as it trades at attractive 12.7x/10.8x FY23/24F (c.2.0 s.d.
below its 5-year mean) P/Es. Key re-rating catalysts include new product model wins
from its key customers, new customer wins and a favourable outcome to its audit report
(likely to be completed by end-May/early-June 2022). Downside risks include continued
production disruptions due to labour/component shortages