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Tuesday, November 6, 2012

SKP Resources Bhd - Earnings Growth Pace Intact (ext.OSK)

SKP Resources’ (SKPRES) 1HFY13 results were within expectations, accounting for 51.9% of our and 51.6% of consensus’ full-year forecasts. Revenue grew 44.2% y-o-y while net profit soared 64.9%, buoyed by surging demand for the group’s plastic moulding products. We continue to like the company’s strong balance sheet with net cash of 9.8 sen per share. This is enhanced by its alluring estimated dividend yield of 6.8% for FY13 and 8.4% for FY14. We thereby reiterate our BUY call and value the stock at RM0.54, pegged to a 9.0x CY13 EPS.

Maintain BUY. Overall, we remain positive on SKPRES’ prospects moving forward underpinned by: i) its client, Dyson’s expansion to China, ii) consistent orders from the company’s other clients, and iii) the stock’s attractive dividend yield. We thereby reiterate our BUY recommendation on the stock, pegged to a 9.0x CY13 EPS, in line with the industry average. Our fair value (FV) does not include the potential dilution effects of its recently-issued warrants, which are trading at a 48.0% premium based on the exercise price and warrant price. While we think that warrant holders are unlikely to convert for the time being, our FV should be diluted to RM0.42, assuming full conversion.

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