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Scientex.....a good case study
Desa20201956
Publish date: Wed, 23 Mar 2016, 11:15 AM
I am not recommending a buy at this level but Scientex is a good case study in what is a good company, good company strategy and good investment.
Both Top Glove and Scientex have many satisfied shareholders but Scientex is on its way to be a good stable giant conglomerate with stable and growing revenues and profits while Top Glove remains subject to the ups and downs of its industry and facing intense competition.
Scientex is a plastic packaging company with factories all over Malaysia and in Indonesia and a leader in its field. Over the years, it has used retained earnings and appropriate borrowings, to diversify into property development. It has made a name for itself as a developer of quality affordable homes in Johor specializing in building affordable homes in the smaller towns in Johor.
By now, property developments is about half of its revenue and profits and manufacturing the other half. Of the manufacturing, about half is export sales and half local sales. Without doubt , their success is a result of clear visions and strategies set by an excellent management team.
While others jump into the lucrative development of condominiums, Scientex are happy to build affordable homes but with a good margin for themselves. At a time when all property stocks , especially the mid cap ones, are shunned by investors , with PEs in single digits and at a discount to NAV, Scientex still command a PE of 14 based on 12 months trailing figures even though half of its earnings are from property development. That itself is surprising.
Turning a negative into a positive. The properly market is soft and is expected to remain soft, but investors have rewarded Scientex for its successful diversification into property development. In the last year, Scientex has also acquired a piece of land in Senai for $200 million which they will develop into affordable homes and townships.
Why I bring up the subject?
Investors reward companies for
- the transparency of their earnings
- having professional investor relations department
- stability and reliability of its earnings
- demonstrated abilities to do long term planning
- not greedy and slow and steady execution of company plans
It is worth while mentioning that Scientex don't have the so popular yet so dilutive warrants . This I like very much and a testament of its excellent management.
Scientex is almost the one of its kind in Malaysian corporate scene.
We want to see Scientex well rewarded because we want to see more Malaysian companies be like Scientex.
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2 people like this. Showing 4 of 4 comments
Mah Sing is a one legged animal compared to a well balanced strategy that Scientex has.
Mah Sing princess inherit a company too reliant on condominiums...she has a tough time just standing still.
2016-03-23 15:44
Excess cash they put into land. Their core business continue to fly.
This in a way is a dream share.
Investors reward them with PE of 14 while other developers gets single digit PE and even their plastic competitors gets a lower PE ratings.....
A case of 1 + 1 = 3
2016-03-23 16:04
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Desa20201956
Even the analyst community has underestimated Scientex.
Lots of investors sold the share when a lot of the profits came from property development. But Scientex has turned a negative into a positive.
That is why I wrote also turning negative into positive.
The difference is in the details. Scientex did it well. Others could not do both well .
Scientex did not neglect its core business. It's core business continued to grow exponentially. ....it has excess cash. They can return all the excess cash to shareholders or they can find another business to invest in. They choose property development.
Most of the time, investor will sell the share, just like you. But Scientex did it so well, it becomes their strength now. That is the message in this write up.
The difference is sorely due to the competence of the management team.
There are many theorists who think a company should stay focused on what they do . Investors can do their own diversifications. But, in this case, Scientex choose to diversify and go the conglomerate route. You must remember Malaysia is a very small country. If they don't diversify , they will always remain a small and medium sized company.
Diversification is the only option left for a Board that wants to have double digit growth for 10 , 20 , 30 years.........I remain optimistic for the future of Scientex years down the road.....they will be able to find other ways to expand and be a true giant
2016-03-23 11:59