SKP Resources Bhd, whose share price reached a record high of RM1.48 at end-July last year, may have the potential to attain a new peak. Analysts say the group’s earnings prospect remains strong, although its earnings for the first quarter ended June 30 this year (1QFY2017) was dragged down by cost pressure.
Given SKP Resources’ strong earnings growth potential, analysts say the valuation of its shares remains attractive. Based on the average consensus target price of RM1.52, the counter has an upside potential of 25%.
The company’s warrant, SKPRES-WA, could be a cheap proxy to tap the upside. However, there are less than 10 months before its expiry on June 27 next year.
SKPRES-WA, which has an exercise price of 65 sen, is trading at a discount of 2.05% based on the mother share’s closing price of RM1.22 last Tuesday.
Historically, the warrant has traded at an average premium of 2.66% to its mother share.
SKP Resources’ net profit rose only 1.92% to RM18.25 million in 1QFY2017, from RM17.9 million the year before, despite its revenue jumping 31.88% year on year to RM320.56 million.
In a report dated Aug 30, AllianceDBS Research says SKP Resources intends to go into printed circuit board (PCB) assembly in the mid-term, which will complement its present tooling, plastic moulding and full-assembly operations.
It adds that there will be cost-saving opportunities as the company will no longer need to purchase PCBs for the assembly of vacuum cleaners.
AllianceDBS says the recent product launch of SKP Resources’ key customer has the potential to be the next best-selling product, following the glowing reviews after the Japan and UK launches.
SKP Resources is currently the sole manufacturer of this product.
The research house also opines that the group is well positioned to take up more manufacturing contracts as only about 25% of the capacity at its new plant in Senai, Johor, has been utilised.
It forecasts that the utilisation rate will increase steadily with the addition of two assembly lines per annum to cater for the expected increase in order volume.
SKP Resources closed at RM1.22 last Tuesday — 18% or 26 sen lower than its all-time high of RM1.48.
According to Bloomberg data, there are five “buy” recommendations on the stock and one “hold” call, with an average 12-month target price of RM1.52. TA Securities’ target price of RM1.80 is the highest while UOB Kay Hian’s is the lowest at RM1.30.
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