Kenanga upgrades SCGM to market perform, raises TP to RM1.05

KUALA LUMPUR: Kenanga research upgraded SCGM Bhd to market perform with a higher target price of RM1.05 following 1Q20 results that exceeded its expectations.

“Going forward, we increase FY20-21E CNP to RM7.7-9.2m (from RM1.4-4.2m), up by 437-116% (low base effect) on higher EBIT margin of 6.3-7.0% (vs. 3.0-4.6% in FY20-21E) closer to current levels,” it said.

SCGM announced recently that its 1Q20 earnings had returned to the black with core net profit of RM2.4mil, which beat Kenanga’s estimate of RM1.4mil for FY20 given the low base effect. While topline came in within estimates, the improved performance was owing to EBIT margin rising to 6.4% on lower raw material cost versus -6.4% in 4Q19.

The group’s first interim dividend of 0.25 sen was also expected as it has not been unusual for SCGM to pay dividends even in loss-making quarters, said Kenanga.

Moving forward, the group will focus on increasing sales of F&B packaging in both the local and export markets and aims to introduce more degradable and biodegradable plastic packaging products.

The group has also moved to the Kulai Plant, boosting production capacity to 67,600 MT/year from about 41,000 MT/year, and will focus on improving operational efficiency through increased automation to achieve better economies of scale.

Kenanga assumes maintenance capex of RM15-15m for FY20-21.

Source: TheStar