RHB Investment Bank in its Malaysia Company Update today (Wednesday, July 3), reported positive feedback from recent visits to SKP Resources’ production facilities, highlighting a promising outlook for the electronics manufacturing services (EMS) sector.
The House maintained its BUY rating on SKP Resources with a target price of RM1.31, reflecting a 10% upside and an approximate 4% yield for FY25F. SKP Resources showed strong performance, with its share price rising 50.6% year-to-date, driven by increasing demand for consumer electronics and strategic positioning to benefit from trade war diversions.
During the visit, RHB observed that production volumes were improving, supported by the normalisation of orders from a major customer and approaching favourable year-end seasonality. The company’s production facilities in Johor had ample floor space due to past capacity expansions, and management expressed confidence in filling this space by securing new customers by year-end. Interest from multinational corporations seeking to diversify manufacturing away from China was particularly high.
The analyst noted that SKP Resources is expected to recover from a 33% decline in FY24 net profit, forecasting a 23% earnings rebound in FY25F. The recovery is attributed to the normalisation of major customer orders and is anticipated to accelerate into the second quarter of FY25F, driven by festive season demand. Despite this positive outlook, RHB made no changes to its earnings forecasts and retained the target price of RM1.31, which includes a 6% ESG discount based on a 15x 2025F P/E.
New revenue streams are set to begin as SKP Resources plans to start production for two new customers by October 2024. While initial contributions to FY25F earnings may be minor, a successful ramp-up could lead to significant order volumes in FY26F. SKP’s management guided an expected sales value of RM100m in the first year for a US-based customer, with potential for this to double in the second year. Additionally, discussions with several potential new customers are ongoing, with at least one expected to be onboarded by the end of 2024.
Given SKP Resources’ strategic positioning and positive outlook, RHB reiterated its BUY recommendation, citing the company as a strong proxy to capitalise on the recovery of global consumer electronics demand and opportunities from trade war diversions. The forecasted recovery in orders and new customer acquisitions positions SKP Resources favourably for future growth, making it an attractive investment for those looking to benefit from the sector’s rebound.
