Summary of 3Q15 Market Outlook & Top Pick

Summary of 3Q15 Market Outlook by Kenanga

The Quater could still be relatively weak due to domestic & external uncertainties:

1. The volatile of MYR
2. Low crude oil prices
3. The 1MDB SAGA
4. Timing & quantum of the US rate hike
5. The potential exit of Greece from EU

Market sell down is more sentiment driven while the underlying buying interest remain lacklustre.
Lowering KLCI target to 1810 while implied 17.9 FY16 PER

The Overweight Sectors as Below:-

• Construction
• Rubber Gloves
• Gaming
• Plastics
• Technology
• Telco
• Water

One of the overweight sector i wish to highlight is PLASTICS due to solid earnings growth &
strengthening USD.

• Export play on strengthening USD. Positive for plastics manufacturers revenue due to high contribution from USD exports. Biggest winner is SLP.
• Stable oil prices should retain margins. we believe sharp increase in oil price is unlikely for now as OPEC will not cut output. Current oil price implying net margin of 11%-13% for consumer packaging & 3-6% for industrial packaging.

TOP PICK is SLP on;

1. stronger sales demand from Japan 
2. beneficiary of a strengthening USD rate 
3. improved net margins to 11.3%-13.6% in FY15-16E due to full year contributions capacity expansions, and downstream services.

SLP through its 2 wholly-owned subsidiaries namely Sinliplas Holding SB & Sinliplas SB has come a long way since its inception in 1989. From modest beginnings as a manufacturer of ice-tube plastic packaging for the domestic market, the Group has grown to become a niche manufacturer for over 1,000 plastic packaging products for international markets including Japan, Norway, UK, Australia, Denmark & Germany and other emerging countries such as Indonesia & Thailand.

The Group successfully developed a ’world-first’ “antibacterial sleeve” to be used as a cover for door handles. This R&D project has been undertaken in collaboration with the US counerpart. In aid of increasing public hygiene, minimising cross contamination and promoting the image of a clean & healthy environment. The anti bacteria sleeves finally being commercialised in Europe and US after years of development.

The Group also newly developed newspaper wrapper to be the first to tap into Japan’s highly demanding auto packaging market.

SLP's product consistency & customer-oriented focus have made us a leading producer of high-quality plastic packaging bags and films for the industrial, household, retail, food & beverages, health care & chemical sectors.

Maxinflax-Bags capacity expansion of 1.8k MT p.a. by 3Q15 is on track, with capacity set at 24,000 MT p.a by end-FY15 and FY16 (MaxInflax will comprise of 38% of the total capacity). This demand is driven by a Japanese customer (Askul Corporation) who operates an online retailer of office products. So far, 2 of the 10 Max Inflax auto packaging machines are being tested, while remaining machines, which also include 6 blown film lines, and 6 bag making lines, are coming on-stream in 3Q15. This is on schedule and is already reflected into our FY15- 16E numbers. So that expect the 1,800 MT p.a. capacity to contribute an additional RM7.0m-RM17.0m (3.8%-8.2%) to FY15-16E revenues.

New machinery to increase automation, allowing for more cost savings. The new machinery for MaxInflax is meant to increase automation, minimizing the workforce by 20 working staff for the end line packing division, which can be deployed to other areas.

This will allow management to improve on cost savings going forward due to less reliance on labor and increased efficiency. So far, margins have improved from single digit 5.7%-9.9% throughout FY14, to 10.8% in 1Q15 on better sales mix and lower finance cost. Once the new lines and automation are up to full speed, we expect net margins to improve to 11.3%-13.6% in FY15-16E, which is far superior compared to industrial packaging peers of 3.5%-4.5% or other consumer packaging peers of 6.8%- 11.5%.

New machinery focussing on increased automation will also minimize labor cost and promote efficiency. SLP’s prospect is also bright as the strengthening USD will continue to benefit topline as its export sales are USD denominated. We also like the fact that the group is constantly looking to value add via niche products specifications for clients and providing more downstream services in the medium to long-term.


The target price of SLP given by Kenanga is 1.76

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