This article first appeared in The Edge Malaysia Weekly, on April 25 - May 1, 2016.

AFTER a strong run last year, the recent share price weakness of SKP Resources Bhd has provided an opportunity to newcomers to participate in the company’s anticipated growth over the next few financial years.

However, its issued warrant, called SKPRES-WA, appears to be a cheaper alternative for investors who wish to be a part of the bright prospects of the electronics manufacturing service provider.

SKPRES-WA has a 55 sen strike price and one-to-one conversion ratio. Issued under a one-for-five free warrants exercise in 2012, the derivative will expire on June 27, 2017.

The warrant has more than doubled in the last 12 months, bouncing back from a 52-week low of 30.5 sen on April 28 last year. It is currently trading at a slight discount of 1.1% to the mother share, which closed at RM1.34 last Wednesday. At zero premium, SKPRES-WA would theoretically be worth 79 sen, which is 1.9% higher than its closing price of 77.5 sen last Wednesday.

A quick check on Bloomberg shows that SKP Resources has a consensus target price of RM1.69, implying a 26.1% upside potential.

That means that at zero premium, SKPRES-WA would theoretically be worth RM1.14, if its mother share reaches the consensus target price. This presents an even higher upside potential of 47.1%.

In a report dated March 18, TA Securities analyst Paul Yap says Dyson is SKP Resources’ key earnings driver, although its other businesses remain vibrant.

“Results were driven by strong orders from Sony and Panasonic for their television casing. Demand was also encouraging in SKP Resources’ food and beverage division, where it produces plastic products such as juice bottles and ice cream tubs,” he adds.

TA Securities maintained its “buy” call on SKP Resources with a target price of RM1.95.

Meanwhile, Public Invest Research analyst Ching Weng Jin came away from a recent meeting with the company’s management with increased belief in its growth prospects.

In a report dated March 15, Ching says the management has assured that operations are in a “full steam ahead” mode and the numbers are already picking up. “The company is not resting on its laurels and basking in the glow of the massive orders it secured from Dyson in 2015, as new opportunities continue to be sought.”

SKP Resources remains one of Public Invest Research’s preferred picks for 2016. The research house retained its “outperform” rating on the stock, with an unchanged target price of RM1.71. 

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