SLP Resources to Solve the Labor Shortage Problem

KUALA LUMPUR: SLP Resources BhdThe utilization rate is expected to recover in the second half of this year after being affected by the labor shortage situation in the country.

According to HLIB Research, the business will experience some recovery as more foreign workers will soon be brought into the country.

“The business’s utilization rate in the second quarter remained at a moderate level of 49.5% compared to 54% in the first quarter due to the continued labor shortage.

“We believe the number of SLP workers has plunged to 260 from 407 workers before the pandemic hit. The group brought in 14 foreign workers in the first round of recruitment where it applied for 105 workers.

“The second round of recruitment, to which management applied for 120 workers, is expected to have a higher acceptance rate and is expected to arrive by the end of next month,” he added.

On a related topic, HLIB Research said the company would allocate RM1.2 million to automate five unit conversion lines to reduce labor dependency.

“Generally, five manually operated converting lines will require seven workers to operate. With the help of automation, a maximum of three workers are needed to operate the five automated converting lines,” the research house said.

“Furthermore, converting line automation is expected to increase unit efficiency and throughput, given reduced operational downtime,” he added.

HLIB Research said it cut its fiscal year 2022 (FY22) earnings by 9% with a lower utilization rate assumption of 55% while keeping FY23 and FY24 assumptions and earnings unchanged.

This is because foreign workers are slower than expected, he said.

It maintained its “buy” call at the counter, with a target price of 97 sen based on 14.5 times the price-earnings ratio (PER) of forecast earnings for FY23.

“This corresponds to its five-year historical average PER. We consider SLP to be a good dividend stock under current macro conditions given its unbroken dividend history with an expected yield of 6.8% for FY23,” he said.

HLIB Research also noted that product sales in the company’s household segment – ​​kitchen and hygiene bag segment – ​​diaper films remained resilient, while trash bag sales saw a slowdown given the relatively elastic demand.

The research house said sales in the medical segment that offer higher margins, and that has been gaining traction.