KUALA LUMPUR (June 4): CGS-CIMB has maintained its "add" call on electronics sub-assembly manufacturer SKP Resources Bhd at RM1.64 with a slightly upgraded target price (TP) of RM2.18 (from RM2.17), and said lockdown limitations placed on its workforce should not put a strain on its productivity.

In a note on June 2, CGS-CIMB said SKP's financial year ended March 31, 2021 (FY21) core net profit of RM128 million was up 71% year-on-year (y-o-y) and within expectations.

Despite temporary plant shutdowns in the first quarter ended June 30, 2020 (1QFY21), FY21 revenue grew by 25% y-o-y, driven by stronger orders from its main customer.

The research house noted that the group's printed circuit board assembly (PBCA) operations contributed 2.2% percentage points (ppts) to its margin expansion.

CGS-CIMB said SKP's quarterly performance saw a 37.6% decrease in revenue and 30.3% in core net profit for 4QFY21, explained by the two-week shutdown of it's Johor Baru operations to carry out Covid-19 screening of its employees and seasonal reasons due to fewer working days and Chinese New Year.

Going forward, the nationwide lockdown requires SKP to operate at 60% of its workforce capacity.

The research house expects the productivity decline to not be drastic as SKP can optimise it to fulfil higher demand product lines.

"To mitigate risk of supply shortages from suppliers, we gather that SKP stocked up on its inventory in 4QFY21, and held a 16% higher inventory value on a y-o-y basis in 4QFY21," said the research house.

"Downside risks include: i) a sharp slowdown in order flows from its key customer; ii) a protracted period of lockdowns and limited workforce capacity; and iii) higher operating costs."

At 10.25am today, SKP had fallen 0.61% or one sen to RM1.63, valuing it at RM2.55 billion.