KUALA LUMPUR (Feb 15): Shares of SKP Resources Bhd declined 3.08% today, possibly due to profit taking, but analysts are still positive about the stock's outlook going forward.

At 12:30pm today, the stock declined 4 sen to RM1.26, with 2.58 million shares done.

When contacted today, Kenanga Research analyst Desmond Chong said the stock had declined possibly due to profit taking.

"There [are] no fundamental changes in the stock. It (the decline) could be due to profit taking," he said.

Nevertheless, the stock is still trading near its all-time high of RM1.51, which it recorded on July 31, 2015 from 40 sen on June 6, 2014. Year to date, the stock has gained 84.95%, outperforming the FBM KLCI which declined 6.67%.

Chong said SKP is one of the most stable stocks in the technology and semiconductor pantheon, as it provides an earnings visibility for at least the next two years, underpinned by the long-term contracts that would be fully reflected from financial year 2017 (FY17) onwards.

"We also like the company for its relatively stable net profit margins of 6% to 7% backed by the cost-pass through mechanism (any additional expenses or cost leavings, they are likely to pass it to their customers) with its customers and vendors," he added.

He also said the stock is relatively cheap as it is trading at about 10 times its FY17 estimated price to earnings ratio (PER) when compared to its two-year net profit compound annual growth rate (CAGR) of about 93%.

SKP had secured two contracts from Dyson last year for the manufacturing of cordless vacuum cleaners totalling RM5 billion.

The first contract, which was announced in May 2015, carries a value of RM400 million per annum over five years while the second contract, announced in September last year, carries a value of RM600 million per annum over five years.

In a note today, Alliance DBS Research analyst Inani Rozidin said SKP is poised to clinch more contracts from its main customer Dyson, which contributed 55% to the company's revenue in financial year 2015 (FY15), as only 25% of its new plant in Senai, Johor, has been utilised.

"With ample spare capacity, we believe the group is well prepared to take on more contracts, which can come from both Dyson and non-Dyson related parties," she said.

"Growth is also supported by SKP's initiative to expand its clientele base and management has targeted 8% annual growth for non-Dyson contracts," she added.

Inani said among the areas SKP is eyeing is the food and beverage (F&B) packaging segment, with plans to supply more plastic packaging to existing customers such as Unilever, Nestle, Suntori, and Shell.

She also said the recent acquisition of Tecnic Group Bhd has not only increased SKP's production capacity but also enable the group to leverage on Tecnic's existing clientele to grow its customer base.

SKP had acquired all of the shares it previously did not own in Tecnic for RM200 million via the issuance of 172.4 million new SKP shares at 58 sen each and RM100 million cash.

She also said the stock is attractively priced at 0.25 times price to earnings growth with a strong three-year earnings per share CAGR of 44%.