Posted by kiaralim19 > 2022-02-06 21:22 | Report Abuse

SKB Shutters Corporation Berhad (Ticker: 7115) *Investment Highlights* 1.The key beneficiary of IFS requirement implementation in Malaysia 2.Recovering from Covid-19 woes 3.Targeting more significant market share through product innovation and capacity expansion *Company Background* SKB has more than 65 years of operational experience in the manufacturing business. It specialises in manufacturing roller shutters, steel door and storage, and handling systems, with 2 principal subsidiaries, SKB Shutters Manufacturing Sdn Bhd and SKB Storage Industries Sdn Bhd. Its production facilities are 50,000 square meters of modern steel structural at Kota Damansara, Selangor. SKB’s products are offered in Malaysia and exported overseas as tested and proven to conform to the highest worldwide fire testing standards - testified by the Warrington Fire Research in the UK and accepted and certified SIRIM and Jabatan Bomba Malaysia locally. *Investment Merits* 1.SKB IFS is the *1st IFS in the region* that has achieved 240 minutes of fire resistance and 240 minutes of insulation. The self-developed and manufactured IFS is currently a patented product in the area with a good margin. With the *enforcement of the adoption of IFS for all commercial and industrial buildings in Malaysia*, the Company is expected to be *benefited from the growing demand for IFS*. 2.Currently, IFS contributes approximately 5% to the SKB group’s revenue. The Company expects the contribution from the IFS segment to *grow 3 times* to 12%-15% of the group’s revenue within the next 5 years given more ASEAN countries are adopting the insulated compartment requirements. 3.The Company *returned to profitability in FYE 2021* with a net profit of RM5.02mil compared to a net loss of RM962k despite the cost-driven challenges from the post-Covid-19 pandemic. This was mainly attributable to its improved gross profit and efforts in its cost management. In addition, the relaxation of Covid-19 restrictions and uplift of MCO have resulted in significant recovery in the industrial construction sector and picking up of sales orders, which is expected to enhance the profitability of the Company further. The Company’s on hand orders in 2022 comprise a sizable portion of foreign-invested industrial projects, mainly in medical device and components, hi-tech electrical and computer components. In addition, the Company is expected to &ride on the growing trend of industrial and warehousing projects&, especially in the northern and central regions. 4.The Company is working on the R&D for several products, including floodgates. In addition, the Company has increased its production capacity by automating the production process and is currently running at approximately 75% to 80% utilization rate. The Company *aims to increase its production capacity by 70% within the next 5 years* to cater to the expected long-term growth in the demand of its existing products and new products (which is expected to yield a higher profit margin). *Our View* We gathered that SKB is tightly held by its major shareholders (Top 30 shareholders control more than 92% of the Company); with the free warrant is coming on board soon, this will bode well to the share price. Since the Company is planning to increase its production capacity by 70% within the next 5 years, we believe it will need to start its CAPEX in the near term. We think the share price will need to continue its uptrend to ensure a successful funding exercise (from warrant conversion). We opine SKB’s fair value should be at RM1.00 (forecast FY22 NP of RM7.5mil and PE of 17x) *Technical Analysis* On 25th Jan, the share price found its support at RM0.48. We think that it is a strong and valid support level as the share price witnessed a deep pull back from the peak. We expect a V-shaped recovery for the stock. Supported by the upcoming issuance of free warrants and the company's increased production, the share price has a higher chance to break a new high. R1: 0.745 (+52%) R2: 0.865 (+30%) S1: 0.480 (-15%)