SCGM’s Kulai plant seen to bump up extrusion capacity, margins

TheEdge Mon, Jul 01, 2019 10:58am - 4 years View Original


SCGM Bhd
(June 28, 85.5 sen)
Downgrade to underperform with a lower target price (TP) of 69 sen:
SCGM Bhd posted its second straight quarterly loss, with a wider loss of RM7.1 million recorded in the fourth quarter of financial year 2019 (4QFY19). The disappointment was attributed to an increase in: i) depreciation expense (+21% year-on-year [y-o-y]); ii) finance cost (+219% y-o-y); iii) resin cost as well as a huge jump in tax expense (+300%) due to deferred tax liabilities recognised on the new machinery and new Kulai plant. For the full year, it registered a loss of RM5.1 million, its first ever annual loss since listing.

 
A final dividend per share (DPS) of 0.25 sen was declared for the quarter, bringing the cumulative DPS to 1.5 sen for the year. Given the weaker-than-expected results, we slash our estimated FY20 (FY20E) to FY22E earnings forecasts by 15% to 34% to reflect weaker gross margin given the higher operating costs and rising raw material prices. Consequently, we downgrade SCGM from “neutral” to “underperform” with a lower TP of 69 sen based on 15 times FY20 earnings per share of 4.6 sen.

Group sales climbed 5.1% y-o-y to RM50.7 million in 4QFY19 on the back of stronger plastic packaging product demand from the local market which improved by 4.4% y-o-y to RM35.2 million. Export sales saw a stronger growth, up 6.6% y-o-y at RM15.4 million. Local sales commanded 67% of FY19 total sales.

The company slipped into the red for a second straight quarter with a ballooning loss of RM7.1 million. A combination of factors contributed to the dismal results, namely, finance cost, depreciation expense, resin cost and also a significant jump in corporate tax, which was mainly attributed to the recognition of deferred tax liabilities on the new machineries and new Kulai plant.

Migration to new Kulai plant has been fully completed, and which will significantly bump up its extrusion capacity to meet growing demand in food and beverage packaging. The higher utilisation rate would eventually result in significant improvement in the productivity and margins.

Despite a poor run of financial results, the company has continued to declare generous dividend payouts every quarter. The cumulative dividend payout stands at 1.5 sen or a total payout amount of RM2.9 million. Savings from the dividend payout could have been better used for paring down the high gearing level, standing at 69.1%. — PublicInvest Research, June 28

 

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

DPS 0.490
SCGM 0.630

Comments

Login to comment.