SCGM is involved in, primarily, the manufacture of thermo-vacuum formed plastic packing — basically, disposal plastic trays for the food and beverage, electronics & electrical and medical sectors.

Aside from growing demand, the company will benefit from lower raw material cost for plastic resin. As an exporter — sales to Asia, Europe, Oceania and North America accounted for 44% of sales in FY April 2014 — SCGM will also gain from the weak ringgit.

The stock is not well known amongst the investing community, perhaps due to its relatively small market capitalisation, currently about RM154 million. But the company has been doing quite well.

SCGM’s underlying business looks fundamentally sound. As of 1Q2015, it has a net cash of RM6.6 million or 8 sen per share. From FY2010 to FY2014, revenue and net profit grew at CAGR of 10.3% and 14.6%, respectively. 

For 1QFY2015, net profit grew an outsized 13.3% y-o-y to RM3.5 million on the back of 6% rise in revenue to RM27.3 million. Net margin widened to 13% from an average of 11.5% in FY2014, boosted by lower raw material cost, increased production and economies of scale. 

To further drive growth, SCGM will invest over RM11 million to boost production capacity by 20% for FY2015. The company is adding a new plastic cup line that will lift capacity and sales by some 10% this year and planning further automation to improve efficiency.

The Edge Research rates SCGM a high Fundamental score of 3 out of 3 and Valuation score of 2.1 out of 3.

The stock is trading at a trailing 12-month P/E of 12.4 times, low relative to prospective growth. It has a minimum 40% dividend payout policy. Dividends totalled 10 sen per share in FY2014, translating into a higher-than-market average net yield of 5.2%.

This article first appeared in The Edge Financial Daily, on January 6, 2015.