SKPRES: Rising in a Vacuum (Updated)

Background

SKP Resources Bhd ('SKPRES') is involved in the manufacture & sales of plastic parts and components, precision and engineering plastic parts. In early 2015, it acquired similar businesses from its sister company, Tecnic Group Bhd.

In the past 6 months, SKPRES had managed to secure 2 significant contracts from one of its big customers, Dyson Ltd. The details of these 2 contracts are as follows:

1) RM2 billion to manufacture new cordless vacuum cleaner spanning five years from October 2015 to September 2020. This translates to an annual revenue of RM400 million.

2) RM3 billion to manufacture new cordless vacuum cleaner spanning five years from January 2016 to December 2021. This translates to an annual revenue of RM600 million.

These contracts would boost SKPRES's revenue for FY16 & FY17 to RM1.3 billion & RM2.3 billion respectively. The company is expected to achieve net profit margin of 7.5% in these 2 years due to enlarged business size and improved efficiency.For more, check out The Edge Daily report.

Historical Results

We can see the gradual improvement in the Top-line & bottom-line for SKPRES for the past 10 years. With the jump in revenue & profits projected for the next 2 years, this uptrend will rise exponentially.


Chart 1: SKPRES's last yearly results plus projection for FY16 & FY17

Recent Financial Results

Its past 140 quarters' results reflects similar impressive growth trend for the company.


Chart 2: SKPRES's last 10 quarterly results

Valuation

SKPRES (closed at RM1.35 last Friday) is now trading at a PER of 25 times (based on last 4 quarters' EPS of 5.3 sen). Based on projected earnings of 10.8 6.8 sen & 19.2 12.0 sen for FY16 & FY17, the high PER will pull back to an attractive 12.5 19.9 times & 7.0 11.2 times, respectively.

(Note: The EPS & PER for FY16 & FY17have been revised.)

Technical Outlook

SKPRES is in an upward channel with support at RM0.85 & resistance at RM1.60.


Chart 3: SKPRES's monthly chart as at Sept 25, 2015 (Source: ShareInvestor.com)

Conclusion

Based on projected sharp rise in earnings & bullish technical outlook, SKPRES could be a good growth stock to consider for investment in the event of price weakness.

Note: 

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of,SKPRES.