SCGM outlook positive over the next few year


ANALYSTS are positive on SCGM Bhd’s earnings outlook over the next few years after the company posted upbeat results in its third-quarter ended Jan 31, 2021 (3Q21), on top of plans to expand its food manufacturing capacity.

Public Investment Bank Bhd (Public-Invest Research) has maintained an ‘Out-perform’ call on the stock with an unchanged target price of RM2.62.

Its analyst Chong Hoe Leong said during a post-result briefing on Monday, the company shared that it has adjusted selling prices across its product range to mitigate the hightening resin price, which has surged to its highest since 2011.

“Resin prices have hit its highest levels since 2011 due to rising oil prices and tight supplies in the market. The group has swiftly adjusted its average selling prices by more than seven times since November 2020.

“On the positive side, management guided that resin prices are likely to come off in the coming months but it is unlikely to revisit the low levels last year,” Chong said in a note yesterday.

Despite the adjustments, he expects there will be a lagged effect and it could take the group up to two quarters to reflect the normalised margin.

“The group is also streamlining its operations by shifting focus to higher value-added products to help mitigate the margin pressure,” he said.

The food packaging manufacturer recently announced plans to spend RM20 million capital expenditure (capex) to expand its food packaging capacity, as its food and beverage (F&B) packaging sales continued to benefit from the new norm of increased food delivery and takeaway amid Covid-19 pandemic.

The company said the capex, which is allocated for its next financial year ending April 30, 2022 (FY22), will be utilised for the purchase of extrusion machines and forming machines.

Its MD Datuk Seri Lee Hock Chai said the capacity expansion proves timely for the company to capture the rising demand from its customers, and allows its additional capacity to serve even more customers in the domestic and international markets.

“We are seeing encouraging uptake for our F&B packaging such as bento boxes, bakery trays and other products in the last few quarters, as we meet increasing demand from F&B businesses in line with higher takeaways amid Covid-19.

“As the largest thermoform F&B packaging provider in Malaysia, we believe we have a competitive edge in sourcing for new clients particularly in the domestic arena, alongside overseas markets such as New Zealand, Australia, Singapore, the Philippines and Indonesia.

“Hence, by leveraging our expanded operating capacity, as well as our extensive distribution network and in-house design capabilities to manufacture innovative products, we are set to continue expanding our clientele going forward,” he said.

The company’s net profit for its 3Q21 surged 94% year-on-year to RM8.1 million from RM4.18 million a year ago due to its revenue growth and favourable product mix.

It noted that the higher net profit was further supported by lower operating costs incurred as the SCGM consolidated its Telok Panglima Garang factory to its larger Kulai plant in March 2020.

SCGM declared a third interim dividend of 2.2 sen per share for FY21, which will be paid on April 28, with an ex-date on April 12.

Alongside the previous first and second interim dividend of 1.7 sen and 1.5 sen paid by the company, SCGM’s total dividend payout for the first nine months of FY21 translates to RM10.4 million or 40% of net profit.