Kenanga Research maintained its earnings forecast for SLP.
PETALING JAYA: Plastic packaging manufacturer SLP Resources Bhd
is currently experiencing a resurgence in orders from Japan for its kitchen and garbage bags, after a period of subdued demand.
The Japanese market ended up contributing 65% to the group’s top line as customers returned for the “superior” performance of SLP’s products, according to Kenanga Research.
The demand from Japanese customers were further boosted following the summer heat in the country, which highlighted the limitations of competitors’ products, leading clients back to SLP for its reliability under stringent conditions.
This positions the manufacturer favourably in a market that values quality and consistency.
The research house said the group’s export competitiveness is influenced by currency fluctuations, particularly its main cost exposure to resin, which is priced in US dollar.
Kenanga Research also noted that this cost is largely offset through US dollar-denominated sales, serving as a natural hedge against currency volatility.
However, the recent strengthening of the Japanese yen against the US dollar by 5.3% over the past three months has enhanced the purchasing power of Japanese buyers, potentially driving up demand for the company’s products.
As a result, all else being equal, this appreciation of the yen is expected to boost revenue by 3%.
With the stronger purchasing power of Japanese customers coupled with a stronger currency, Kenanga Research said this can help lessen the impact of a stronger ringgit on cost base.
While the potential acquisition of two major clients could present a significant opportunity, the research house said the group may need to invest in new machinery over the next 12 to 24 months if orders continue to grow.
This comes after considering SLP’s utilisation rate, which has improved from 48% to 62%.
Hence, the research house noted that by focusing more on improving operational efficiencies, SLP could offset some capacity constraints as it adds new clients.
Kenanga Research maintained its earnings forecast for SLP as it liked the group for its product mix of high-margin, non-commoditised products, as well as its robust cash flows and a strong balance sheet.
It also favoured SLP for its prominent position in the regional mono film market, driven by its fully recyclable MDO-PE film in response to growing demand for sustainable packaging solutions.
The research house kept its “outperform” call on SLP with a higher target price of RM1.05 per share.
