KUALA LUMPUR (Aug 3): RHB Small Cap Asean Research has maintained its “Buy” rating on SKP Resources Bhd at RM1.77 with a higher target price of RM2.05 (from RM1.93) and said notwithstanding the near-term challenges, e SKP’s growth prospects and outlook remain promising.

In  a note today, RHB’s Soong Wei Siang said he expects SKP’s upcoming 1QFY22 results to meet estimates, while reflecting healthy topline growth.

“We view electronic manufacturing services as one of the more resilient industries under the current lockdown environment, thanks to steady global demand and the cost pass-through mechanism, which should mitigate any rise in production costs.

“This, together with new production lines secured earlier, should propel the company’s 3-year net profit CAGR to 13%,” he said.

Soong said SKP is scheduled to release its 1QFY22 results on August 30.

“We expect both quarterly sales and profit to improve significantly year-on-year, from the low base in 1QFY21 that was affected by MCO 1.0.

“On a quarter-on-quarter basis, 1QFY22 sales should normalise from the seasonally weaker 4QFY21, but bottomline growth could be flattish as 4QFY21 earnings incorporated some one-off margin boosters and relatively low effective tax rates,” he said.

He added that SKP is also scheduled to commence another two new production lines by end-2021 and 1Q22.

“We understand both lines will be housed in a newly leased plant, and SKP is embarking on another major expansion which could start construction by 4Q21, and potentially lift its total capacity by circa 40% once completed.

“We believe this has showcased SKP’s optimism on the continuation of order flows moving forward, fuelled by its major customer’s product innovation and ambitious growth targets,” he said.