KUALA LUMPUR: SCGM Bhd is expected to pass on the rising costs of resin by raising average selling prices (ASPs), Kenanga Research said.
Kenanga Resesrch said resin prices had increased since July due to electricity disruption in China and the freight issue.
"Moving forward, SCGM will continue to focus on its food packaging segment to achieve a more favourable and higher-margin product mix.
"We gathered that SCGM's utilisation rate is at 65-70 per cent (versus 55-60 per cent during the Movement Control Order) to fulfil its backlog orders.
"We continue to like SCGM for resilient demand for its products yet being cautious on delivery of orders due to labour shortage," it said in a note today.
Kenanga Research said SCGM's first half ended October 31, 2021 (1H FY22) core net profit of RM16.3 million came below expectation, making up 42 per cent of the firm's FY22 estimate.
The firm added that SCGM's 1H FY22 dividend of 3.7 sen was within expectation, at 46 per cent of its FY22 dividend per share (DPS) forecast of 8.1 sen.
Kenanga Research has lowered SCGM's FY22 revenue and core profit by three per cent and five per cent to RM283.6 million and RM36.7 million respectively, accounting for labour shortage issue which will adversely affect sales volume in the subsequent quarters, and on higher administrative costs.
Referring to its 40 per cent dividend policy, Kenanga Research estimated FY22 and FY23 dividend per share of 7.6 sen and 8.5 sen, implying 3.1 per cent and 3.5 per cent yield.
It has reiterated its "Outperform" call on SCGM with a lower target price of RM2.80 from RM2.97 previously.