KUALA LUMPUR (Dec 10): Kenanga IB Research has initiated coverage on SKP Resources Bhd (SKPRES) with an “Outperform” rating at RM1.34 and target price of RM1.76 and said the company had remained profitable for the last ten financial years and achieved a 10-year NP CAGR of 12.6%, overcoming the ups and down of a few challenging economic cycles.

In a note today, the research house said it liked SKPRES for its (i) solid reputation in the industry with world-class manufacturing capability, which warrants higher chances of it winning other contracts in the near to medium term, (ii) resilient earnings prospect (at a 2-year NP CAGR of 93%) backed by its on-hand long term contracts from the top-notch home appliance maker, Dyson, (iii) earnings accretion from the acquisition of Tecnic, and (iv) strong Balance Sheet and healthy Operating Cash Flow which will support its generous Dividend Payout Policy of no less than 50% from its PATAMI (translating into decent dividend yield of 2.7%-4.7%).

“We initiate coverage on SKPRES with an Outperform call at a target price of RM1.76.

“This is based on a targeted 14.0x FY17E PER, a multiple which is 20% higher from its EMS industry peers.

“The premium valuation is justified, backed by its robust 2-year NP CAGR of 93% as well as the higher-than-industry (yet sustainable) margins backed by its cost pass through mechanism,” it said.