KUALA LUMPUR: SLP Resources Bhd anticipates a modest recovery fuelled by a potential rebound in its export markets, particularly Japan, according to Public Investment Bank Bhd (PublicInvest).
The research firm highlighted that stronger wage growth, government subsidies, and more moderate inflation, resulting from the Bank of Japan's recent interest rate adjustment, are expected to enhance consumer spending.
"The group has seen a surge in orders from the Japanese market, with revenue growing by 54 per cent year-on-year (YoY) to RM16 million, contributing 38 per cent to the Group's total revenue in the second quarter of the of the financial year 2024 (2QFY24)," it said.
The plastic packaging manufacturer saw its net profit decrease by 32.7 per cent YoY to RM3.3 million despite higher revenue, mainly due to lower average selling prices (ASP) in response to the intense competition in the packaging industry.
"This was further aggravated by higher material, transportation, and insurance costs resulting from the imposition of a service tax on logistic services and an increase in the newly revised service tax rate from 6 per cent to 8 per cent," it said.
On the outlook, PublicInvest mentioned that the flexible plastic packaging industry is still facing challenges due to an imbalance between supply and demand, as well as high production costs.
However, it noted that despite these obstacles, there are indications of a gradual improvement in the operating environment and a recovery in demand.
"Headline inflation is showing signs of cooling, while demand is expected to improve, underpinned by resilient domestic consumption, rising tourism, and strong offtake from the Japanese market.
"Besides that, the Group also allocated a RM6 million budget to increase production capacity to penetrate other potential markets and to increase production efficiency," it said.
The company stated that SLP's recently acquired machine from Europe is expected to be installed and operational by the fourth quarter of this year.
PublicInvest has revised its rating on SLP from 'underperform' to 'neutral,' while maintaining its target price at 86 sen.