• Scientex Berhad (Scientex) business trajectory is set to be spurred by resilient growth in packaging segment through its organic expansion. This will also be boosted by the company’s initiative through M&A activities.

• Property segment growth, on the other hand, is expected to be backed by inelastic demand on affordable housing which is still short in supply.

• This will also be added by broad initiatives on R&D to develop sustainable flexible packaging, eco-friendly products in line with clients’ requirements.

• We initiate coverage on Scientex with a BUY call and TP of  RM3.88, derived based on sum-of-parts (SOP) valuation.

Organic expansion and M&A activities to drive growth

Scientex has grown over the years and become a leading end-to-end packaging player steered by growth-oriented and experience management. Note that Scientex growth ability shall be pushed by diverse products offerings, ranging from industrial to consumer.  The management is optimistic to achieve 400k MT/year capacity by FY2023 through organic expansion as well as merger and acquisition (M&A) activities.

Fulfil the gap on supply-demand disequilibrium in Property market

Scientex has a strong position to take a slice of affordable housing market especially in the Southern region of Peninsular Malaysia.  With price offering below RM500k, the Group managed to reach a  commendable take-up rate (c.75%-85%) for its housing projects. Scientex is setting its eye to develop 50k units of affordable housing by CY2028.

Devoted on its products offering

The Group is putting a solid effort on R&D in line with its aim to offer a well-grounded plastic packaging products to their clients. Its R&D activity is being carried out to execute clients request and requirement to ensure clients’ satisfaction. Some of its clients are comprised of multi-national companies (MNCs) such as Nestle,  Pepsico as well as prominent domestic brands. As for stretch film,  their key clients are the large distributors in Japan.

Initiate with a BUY call with TP of RM3.88

We initiate coverage on Scientex with a BUY recommendation and TP of RM3.88 based SOP-derived valuation. We peg packaging segment PER at 12.9x (10% premium weightage average peers PE) as we expect rapid growth prospect for Scientex compared to its peers. Property segment wise, we apply a 30% discount to its property RNAV given its smallish market share and low margin housing category.

Source: BIMB Securities Research - 29 Nov 2022