SCGM: Earnings Grew Strongly

Results Update

In QE31/7/2020 (1Q2021), SCGM's net profit rose 20% q-o-q or 276% y-o-y to RM8.3 million while revenue increased 15% q-o-q or 3% y-o-y to RM57 million. The group revenue rose q-o-q due to increase its manpower to 100% from May 2020 onwards under the Conditional Movement Control Order (CMCO), compared to 50% manpower during the Movement Control Order (MCO) from March to April2020. Also, the Group commenced production of face masks in May 2020, which contributed positively to 1Q2021 revenue. The Group recorded 47.8% q-o-q increase in PBT, which is attributable to improved sales mix, lower resin costs and lower interest expense. In line with the increased revenue, the Group noted 20% q-o-q increase in NP, due to the partial utilization of unutilized reinvestment allowance brought forward from prior year, and partial recognition of deferred tax asset on unabsorbed reinvestment allowance previously not recognized.

 
Table: SCGM's last 8 quarterly results

 
Graph: SCGM's last 45 quarterly results

Financial Position

SCGM's financial position is deemed healthy with current ratio at 1.45 times while gearing ratio is elevated at 0.71 time.

Valuation

SCGM (closed at RM3.59 yesterday) is now trading at a PE of 30X (based on the last 4 quarters' EPS of 12.11 sen).  At this PE, SCGM is deemed fully valued.

Technical Outlook

Recently, SCGM broke above its high of RM3.35-3.40 recorded in 2017, and went to a high of RM3.95. 


Chart: SCGM's weekly chart as at Sep 28, 2020 (Source: Malaysiastock.biz)

Conclusion

Based on improved financial performance, healthy financial position & bullish technical outlook, SCGM is a good stock for long-term investment. However its upside potential may be limited due to its demanding valuation.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.