The call was based on FY2023F earnings per share (EPS) of 3.3 sen and a price-earnings ratio (PE) of 19x, which is a 10% discount to the five-years average of the industrial products sector.
The TP represents a potential return of 26% over the current price.
“We like the stock for its attractive expansion and diversification plans, and high technical capabilities.
“(L&P) is well-positioned to leverage on the growth of the wooden industrial packaging industry which is driven by the preference for wood over plastics as material for wooden industrial packaging.” the research house said in a note.
ACE-Market listed L&P Global, formerly Berjayapak International Holdings Sdn Bhd, designs and manufactures wooden industrial packaging products comprising boxes, crates and pallets.
The group pulled off its strongest ever 12-month performance in FY2022, after posting a net profit of RM14.7 million and revenue RM150.5 million.
Mercury said the results were within expectations, achieving 99.9% and 84.5% of its full year revenue and profit forecasts for FY2022.
However, the group did experience a slower Q4 in FY2022, as revenue was down 10.2% from the previous quarter due to slowdown in demand as customers scheduled vacation shutdown and undertook inventory adjustment.
Furthermore, the group’s profit margins fell in FY2022 due to a one-off expense of RM2.73 million on its initial public offering exercise in January and legal fees to obtain banking facilities for the acquisition of branches in Perai and Kulim.
The group posted a net profit of RM14.3 million in FY2021 and RM9.9 million in FY2020 representing a net profit margin of 11.9% and 11.2% respectively.
L&P has been operating in the industrial packaging industry for approximately 39 years, giving the group high technical know-how on wood materials. This has enabled them to tailor manufacturing processes to customer requirements.
L&P has some 300 customers, of which 55% are MNCs, contributing to 97% of their revenue.
Future expansion plans
Going forward, the group intends to expand its circular supply service offerings by extending logistics services to its existing customers, as well as reusing and recycling used industrial packaging products.
In 2023, the group intends to expand its sales in the solar energy, pharmaceutical and circular supply projects which will increase utilisation rate in the box and crate, engineered wood pallet, as well as the recycle pallet business.
Moving on to 2024, the group plans to expand its sales in the semiconductor equipment manufacturer, coupled with solar energy projects based on customers’ capacity increase.
This comes as a push by the group to obtain more new customers from various industries which will aid its diversification plans and reduce its concentration risk on the renewable energy industry.
The group also has expansion plans throughout Malaysia. Up north, it plans to relocate a portion of its assembly activities for boxes and crates to the Perai and Kulim plants. Meanwhile, it intends to expand its operations in Johor via the construction of a new factory.
The group is also in the midst of identifying a 12,000 sq ft factory lot for rental and plans to set up an assembly and storage plant in the Klang Valley.
Group CEO Ooi Lay Pheng along with his senior management team have more than 20 years of industry experience. The group was able to achieve a three-year revenue compound annual growth rate (CAGR) of 31.4% from FY2019 to FY2022.
On possible risk factors, Mercury listed labour shortages, and customer concentration risk as First Solar Malaysia Sdn Bhd contributed 59.4% to total revenue in FY2021.
At press time, L&Ps shares fell 1.5 sen or 2.94% to 50 sen, valuing the group at RM280 million. Its shares are down 9.09% or 5 sen for the year.