PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 14 Jul 2020, 10:11 AM


SCGM Bhd - Another Strong Quarter

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SCGM continued on its encouraging path to recovery with 9MFY20 earnings jumping 5-fold to RM10.6m, making up 86% of our full-year earnings forecasts and also surpassing consensus full-year earnings forecasts. Despite seeing weaker topline growth, the stronger-than-expected earnings were largely attributed to a sharp decline in resin cost, resulting in gross margins surging from 1.3% to 8.1%. A higher DPS of 0.5sen was declared for the quarter. Meanwhile, in view of the mounting concerns on the Covid-19 outbreak, management has recently ventured into healthcare protection gear business with the production of face shields and face masks. We are lifting our FY20-22 earnings forecasts by 10%-26% to reflect the weaker resin costs as well as higher margins from the healthcare segment. Consequently, we retain our Trading Buy call with a higher TP of RM2.20 based on higher PER of 22x (up from 20x).

  • 3QFY20 sales slipped 7.2% YoY to RM51.6m. Group sales dropped to RM51.6m, dragged by a decline in local market sales (-11.8% YoY) while export sales were flat at RM19.6m. The decline in topline was mainly attributed to the Group’s strategic direction of focusing on higher margin customized packaging products instead of high volume non-customised F&B packaging products.
  • Posting a third straight profitable quarter with RM4.3m in 3QFY20. The Group recorded a profit of RM4.3m in 3QFY20 compared to a small loss of RM0.7m in 3QFY19. The strong earnings recovery was mainly due to i) a switch to high-margin customized packaging products, ii) lower resin cost, iii) a decline in interest expense (-14.3% YoY) and iv) tax credit due to the utilization of capital allowance and reinvestment allowance. Meanwhile, its gross profit margin surged from 1.3% to 8.1%.
  • Running at lower productivity level during the MCO period. Last Tuesday, management received approval from the Ministry of International Trade and Industry to continue operation during the Movement Control Order (MCO) period, albeit at a lower utilization level of 50%. During the MCO period, the company received a surge in demand for its plastic packaging products, bolstered by increasing takeaway food orders as well as supermarkets and essential food services, which are also their key customers.
  • Venturing into healthcare protection gear business. Given the ample stock of polyethylene terephthalate (PET) that it has, as well as rising demand for personal protective gear, the company decided to foray into the making protective face shields and face masks. It has moved a quarter of its workforce to its newly established healthcare protection gear segment. With a capex of RM1m, it has ordered a face mask making machine and targeted for a mass production by mid-April with a production capacity of 50k pieces/day. Meanwhile, its face shield has received encouraging response with recorded sales of RM2.9m and a production capacity of 290k units/mth.

Source: PublicInvest Research - 31 Mar 2020

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SCGM 2.10 -0.07 (3.23%) 2,122,600 

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