14 hours ago
Strong ringgit hits SLP's earnings
Kenanga Research remains optimistic about SLP's recovery ahead.
PETALING JAYA : Analysts say that SLP Resources Bhd 's latest financial results have come in below expectations.
SLP Resources reported its results for the first half ended June 30 (1H25) last week.
Kenanga Research said the plastic packaging manufacturer's 1H25 results accounted for only 35% of its full-year forecast.
The research house, which downgraded its rating for SLP Resources to 'market perform', said the group's performance, especially in the domestic market, was weaker than expected.
'Hence, we cut our earnings forecasts for this year and next by 29% and 13%, respectively, and we trim our dividend forecasts to 4.25 sen and 4.5 sen from 4.8 sen and five sen, respectively,' the research house said.
SLP Resources recorded net profit of RM5.5mil in 1H25, translating to basic earnings per share of 1.58 sen. This was a decline from RM8.2mil in 1H24.
Meanwhile, revenue for 1H25 dipped by 2% year-on-year to RM80.9mil, as higher export sales were largely offset by less favourable exchange rates and a weaker contribution from domestic manufacturing.
The company was also burdened by an increase in operating costs from the higher national minimum wage that took effect in February.
For its second quarter (2Q25), SLP Resources recorded revenue of RM39.8mil, a decline from RM41.7mil in the same quarter a year ago.
Net profit for the quarter tumbled 46.4% year-on-year to RM1.7mil.
Kenanga Research pointed out that the group's performance in 1H25 was mainly due to less favourable exchange rates, with ringgit strengthening more than expected against the US dollar by around 3% compared with the preceding quarter.
'The group's performance was also attributable to increased competition as certain competitors redirected their attention from the export sector in response to US tariffs,' Kenanga Research said.
Going forward, the research house said it expects the group to continue facing unfavourable foreign-exchange rates in 2H25 that will suppress profit margins as export sales in the manufacturing segment contribute more than 50% of revenue.
'While Japanese orders for kitchen and rubbish bags were steady as buoyant tourism helped support overall demand for packaging, we expect demand for SLP Resources' plastic packaging products in Malaysia to remain challenging on tariff disruptions and intensifying competition despite minimal direct impact from US tariffs, given that its exports to the United States made up less than 3% of its total revenue,' the research house added.
Kenanga Research said overall, after some weakness with its Japanese exports in 2023, orders have recovered following a recent marketing push which SLP Resources is continuing.
Hence, it expects Japan to remain the largest export market for SLP Resources, accounting for 30% to 40% of its sales of plastic packaging.
The move away from fashion bags in Australia and New Zealand has shrunk exports but SLP Resources has been studying and tapping into new opportunities there to recover orders.
'The earnings catalyst for SLP Resources remains the ongoing progress on developing new lines for the components of medical-related devices, which command better margins, for international clients. Management aims to reach finalisation in 1Q26,' Kenanga Research said.
The research house, which has a target price of 89 sen for SLP Resources, favours the group for its focus on high-margin, less commoditised segments, robust cash flows and a strong balance sheet as well as upcoming ventures into the higher-margin medical device components.
