Investment Highlights

• We maintain our BUY call with a higher fair value (FV) of RM5.25/share for Scientex based on sum-of-parts (SOP) valuation. We peg Scientex’s manufacturing segment to an FY23F PE of 18x, at a premium compared to its peer stretch film makers’ average forward PE of 12.5x. This is to reflect the division’s higher earnings growth of about 12% annually in FY22–24F (vs. a weighted average of about 10% annually for its global peers). Our FV also imputes a 3% premium to the SOP based on our 4-star ESG rating (Exhibit 4).

• Although Scientex’s 1QFY22 net profit of RM102.9mil was 11% higher YoY, it made up only 21% and 20% of our and consensus’s full-year estimates. However, we consider the results within expectations, underpinned largely by seasonally stronger 4Q results in the property segment.

• On a YoY basis, revenue for the manufacturing and property segments grew by 16% and 14% respectively, driven by: (1) healthy demand from industrial and consumer packaging products in the domestic and export markets; (2) steady progress billings for ongoing projects and good take-up rate for its latest launches in Johor and Penang; and (3) the completion of several project phases in Rawang, Selangor and Durian Tunggal, Melaka.

• In addition, Scientex’s property division EBIT margin improved 18% YoY to RM68.5mil (vs. previously RM58.2mil), primarily due to its new launches of 380 units in Tasek Gelugor and Pulai. As of 1QFY22, the group’s progress billings from unbilled sales stood at RM965mil for its property division, which we expect will continue to be profitable for coming quarters.

• We continue to like Scientex for: (1) the strong prospects of the packaging industry due to consumer spending, a shift to on-the-go food and beverages due to a hectic lifestyle and higher food safety standards; and (2) a robust property development business despite the soft market in general thanks to its right focus on predominantly landed affordable residential units in secondary suburbs.

• At about 13–14x fully diluted FY23F earnings in its entirety, we think that this home-grown regional/global plastic packaging player is highly compelling given its strong foothold in a consumer-fuelled sector.

Source: AmInvest Research - 9 Dec 2021