PETALING JAYA: A modest recovery in demand for SLP Resources Bhd
’s plastic packaging products is expected, driven by increased Japanese orders as Japan’s tourism sector boosts consumption.
Kenanga Research highlighted in a report that the Japanese market accounts for 30% to 40% of SLP’s total plastic packaging sales, particularly in kitchen and garbage bags, due to their superior quality and adherence to sustainability standards through down-gauging technology.
“SLP remains committed to premium offerings, such as the fully recyclable MDO-PE film (fully recyclable mono film), positioning itself to capitalise on the shift toward sustainable packaging.
“The utilisation rate for its MDO-PE film has risen to over 30% from 20% in the first quarter (1Q) of 2024, with more inquiries from domestic and Asean markets, “ the research house noted.
However, the brokerage expected continued cost pressures from higher utility and logistics costs, as well as increased minimum wages, potentially weighing on margins through the 4Q of financial year 2024 (FY24) and into FY25.
These pressures may be partially offset by labour automation and cost pass-throughs to customers.
“Furthermore, SLP continues to invest in new machinery to stay ahead of industry trends, particularly the shift towards circular packaging.
“The upcoming installation of a new machine from Europe, set for 4Q of FY24, will enhance the company’s capabilities in producing flexible, sustainable packaging.”
Kenanga Research added that this strategic investment not only supported SLP’s commitment to low-carbon manufacturing, but also positioned the company to better capitalise on the growing demand for eco-friendly solutions, reinforcing its competitive edge in the market.
The research house noted that SLP’s results for the nine-month period ended Sept 30 (9M24) were disappointing, primarily due to weaker 3Q revenue and margins as the ringgit strengthened during the quarter.
Moreover, higher-cost resin bought at a less favourable exchange rate squeezed 3Q margins.
Despite this, 9M24 core net profit grew 14% year-on-year, fuelled by stronger exports to Japan, which may continue as the year-end holiday season boosts tourism and consumption.
Kenanga Research reduced its earnings forecasts for FY24 and FY25 by 8% each, and cut its target price for the stock by 5% to RM1, from RM1.05.
However, the brokerage maintained its “outperform” call, citing attractive dividend yields as a key support factor.
