SCGM up 8% on strong earnings growth, dividend

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KUALA LUMPUR (March 31): SCGM Bhd shares rose as much as 8.03% or 11 sen to RM1.48 in morning trades today, after the group posted a sharp turnaround by registering positive earnings.

At 10am, SCGM rose two sen or 1.46% to RM1.39, valuing it at a market capitalisation of RM262.4 million. The counter saw some 5.36 million shares traded, which is almost eight times its 200-day average volume of 690,468 shares.

In a filing with Bursa Malaysia yesterday, the thermoform food packaging manufacturer saw a turnaround in its third quarter ended Jan 31, 2020, with a net profit of RM4.18 million, compared with a net loss of RM694,000 a year earlier. This was despite revenue declining 7.2% to RM51.64 million, from RM55.64 million previously.

SCGM proposed a third interim dividend of 0.5 sen per share, to be paid on April 30. This brings its total dividend to-date to 1.75 sen per share, up from 1.25 sen in FY19.

For the nine-month period ended Jan 31, 2020 (9MFY20), the group saw its net profit jump five times to RM10.41 million, from RM2.02 million in the previous corresponding period.

PublicInvest Research retained a “trading buy” call on SCGM and said the group continued on its encouraging path to recovery with 9MFY20 earnings jumping five-fold to RM10.6 million, making up 86% of the research house’s full-year earnings forecasts and also surpassing consensus full-year earnings forecasts.

“Despite seeing weaker topline growth, the stronger-than-expected earnings were largely attributed to a sharp decline in resin cost, resulting in gross margins surging from 1.3% to 8.1%. 

“We are lifting our FY20-22 earnings forecasts by 10%-26% to reflect the weaker resin costs as well as higher margins from the healthcare segment. Consequently, we retain our 'trading buy' call with a higher target price (TP) of RM2.20 based on a higher price-earnings ratio (PER) of 22 times (up from 20 times),” the research house said in a note today.