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Monday, July 27, 2015

SKP Resources - Growth Assured

We had an opportunity to visit the Group's assembly plant in Johor recently, coming away certain that our confidence in the Group has not been misplaced. Growth remains firmly on track with capacity and capabilities in no question, reflected by the gradually increasing share price as more investors exhibit greater appreciation of its prospects. Its share price has already appreciated 59% since our initiation just 3 months ago, and a cumulative 120.3% year-todate. The recently-announced financial results which saw slightly lower margins recorded is not overly-worrisome, as we expect the significant levels of growth in the coming financial years to mitigate any potential erosions from raw material cost pressures.

We maintain our Outperform call with a raised target price of RM1.71 (RM1.18 previously) as we roll over our valuations to FY17, adequately capturing the Group's healthy growth spurt in the coming few financial years, underpinned by the expected increase in orders from its key existing clients. Our earnings estimates for FY16 and FY17 are raised c.10% higher to account for slightly higher production assumptions.
Positive developments. The Group recently secured an annual RM400m contract for five years to manufacture Dyson's new cordless vacuum cleaners, slated for commencement this coming October. Undeniably positive, we see this as prelude of many more to come given SKP's growing standing with Dyson in being a key manufacturing partner. With an estimated RM8.5bn that Dyson intends to spend on developing 4 new ranges of technology which will launch 100 new products all over the world over the next 4 years, the prospects of the Group are bright.
Of immediate excitement however is Dyson's plan to increase the production of its motors to 11m units by this year-end from 4m last year, suggesting an immense uplift in the production of various other products in both its manufacturing facilities in Singapore and Malaysia. It has already spent SGD100m early this year to double its output of motors in Singapore, which are used to drive products assembled in Malaysia like cleaners, fans, hand dryers and lighting.

Source: PublicInvest Research - 27 Jul 2015

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