PETALING JAYA: SFP Tech Holdings (SFP Tech) is on track to register steady profits in financial years 2023 (FY23) and FY24, according to Hong Leong Investment Bank (HLIB) Research.
It said the positive outlook is bolstered by higher profitability margins and a significantly higher growth rate with a three-year compounded annual growth rate of 29% from FY22 to FY25.
HLIB Research said the group can expect to see contributions by EST Exhibit Automation Sdn Bhd, which would also make it a one-stop automation equipment solutions provider.
Another factor was the completion of its third manufacturing plant, a three-storey factory and warehouse with a three-storey office building that will triple the group’s total current built-up area of 152,500 sq ft.
Furthermore, HLIB said the plan for 41 new computer numerical control milling machines in the next three years would cumulatively increase the group’s maximum manufacturing production capacity by 25.3%.
For its year-to-date results, the integrated engineering and automation solutions provider’s core net profit for the second quarter ended June 30, 2023 saw a 19% increase to RM8.6mil.
This was due to a significantly higher contribution from its mechanical assembly segment after locking in orders from an undisclosed customer early this year.
On its quarterly results, SFP posted a lower net profit on the back of higher depreciation throughout the quarter and a product mix that is skewed towards its mechanical assembly segment, which typically yields lower profitability margins.
“We note that SFP’s core net margins dipped by seven percentage points in the second quarter of 2023 to 23.5%, as the group was dealing with few first article production, stemming from the many new alternative approved vendor inclusions since the second half of last year and it requires time to be familiar with the said project,” it said.
“Once done and dusted, we are expecting profit margins to improve in subsequent quarters.”
HLIB Research deemed the results to be broadly within expectations, as the group typically rakes in a seasonally stronger second-half performance.
“We maintain our ‘hold’ call on SFP Tech with a higher target price of RM1.01 (from 79 sen), pegged to a forward multiple of 41-times on FY24 earnings.
