PETALING JAYA: Seasonally higher orders driven by year-end festive demand should improve the sales outlook in the upcoming quarter for SLP Resources Bhd
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However, a key risk is the limited availability of shipping containers in the South-East Asian region, exacerbated by the ongoing Red Sea conflict and recurring drought in the Panama Canal, which has led to reduced ship turnover.
Hong Leong Investment Bank (HLIB) Research said this disruption could impact the group’s raw material supply chain, leading to increased costs that may not be fully passed on to customers due to the still subdued demand in its major export markets.
These logistical challenges have spurred shifts in the local market, with more competitors emerging, which could further pressure the group’s margins, it adds.
However, the recent appreciation of the yen against the US dollar following the Bank of Japan’s rate hike should positively influence SLP’s sales to Japan, which is its largest export market.
Kenanga Research said the yen’s strength could also take some wind out of the sails of Japan’s booming tourism industry, which has partially contributed to Japan’s higher demand for plastic packaging.
Japan contributes to almost 40% of SLP’s total plastic packaging sales, predominantly kitchen and garbage bags, which are well liked by Japanese customers given their high quality and adherence to sustainability standards via the downgauging technology.
It said the utilisation rate for its fully recyclable mono film has increased to about 30% (from 20% in the first quarter 2024) with more inquiries from domestic and Asean markets.
However, some overseas customers (particularly from Thailand and Vietnam) are delaying orders due to their weak local currencies against the dollar.
Kenanga Research expects cost pressures from higher logistics costs, due to the service tax hike and potential minimum wage increases.
These should be partially mitigated by enhanced labour automation and gradually passing on costs to customers, it adds.
Kenanga Research cut its financial year 2024 (FY24) to FY25 net profit forecasts by 11% and 16%, respectively, to reflect higher costs.
It reduced its target price (TP) to RM1.05 a share from RM1.16 a share and tweaked FY24 to FY25 dividen forecasts to five sen and 5.5 sen, respectively, from six sen.
HLIB Research made no changes to its earnings forecast. It upgraded its call to a “hold’’ with an unchanged TP of 83 sen a share.
