• Overview. Scientex Berhad (Scientex) 2QFY23 core net profit and revenue tumbled by 10.9% QoQ and 5.0% QoQ, no thanks to slower sales from Packaging segment and higher tax expense. It was a contrast however for YoY basis where core net profit and revenue improved by 0.4% YoY and 2.8% amidst strong demand from new launches and hence, Property segment (+24.7% YoY) which substantially offset the decline in Packaging segment (- 5.4% YoY). As for 1HFY23, both core net profit and revenue surged 12.1% YoY and 6.8% YoY respectively powered by encouraging sales from Property segment; +25.5% YoY.

• Key highlights. Industrial packaging demand wobbled slightly as distributors stocked up cautiously due to downward trend in resin price. Packaging segment sales remained intact however as consumer packaging products were used by end users. On property segment, the Group launched RM1.13bn gross development value (GDV) as at 1H23 with 14 launches across Kedah, Penang, Selangor, Melaka, and Johor. The group reported encouraging take-up or on average 70% for these launches. Note that Scientex is targeting to achieve a RM2bn GDV for FY23 with potential maiden launches.

• Against estimates: Inline. 2QFY23 core PATAMI of RM213.2mn came below ours and consensus estimates, making up only 41.9% and 44.2% of full-year forecast.

• Outlook. Scientex is adopting a cautious stance on demand for industrial packaging in the near term, owing to unexpected fluctuation in resin prices. Nevertheless, this has been counterbalanced by steady demand for consumer packaging products consistent with encouraging contracts with customers and a cost-plus model is being applied to ensure a commendable profit margin. All in all, the Group is committed to take measures to mitigate the impact of global uncertainties as well as elevated operating costs. Scientex’s growth trajectory is set to be driven by resilient demand for its diversified products on top of commendable take-up rate for its housing projects. Overall, we like Scientex due to its: i) organic expansion and M&A activities which may drive long-term growth, ii) steady position as affordable housing developer, and iii) high commitment on sustainability and environment for their plastic products.

• Earnings revision. In view of lower-than-expected earnings forecast, we tweak down to our FY23F-FY25F earnings forecast to account for lower sales volume from packaging segment.

• Our call. Maintain a BUY call on Scientex with higher target price of RM4.00 (RM3.88 previously), as we roll over our target price to FY24. Note that we give a lower discount for property segment to account for sturdy demand for affordable homes amid current economic recovery post Covid-19 pandemic.

Source: BIMB Securities Research - 16 Mar 2023