Scientex Berhad (Scientex) registered a 4QFY23 core PATAMI of RM135.3mn, which surged 18.5% QoQ and 3.2% YoY growth, thanks to a higher contribution from Property segment. Cumulatively, FY23 core PATAMI stood at RM462.5mn, representing a 10.4% YoY increase. The results came in within our and consensus estimates, making up 97.5% and 99.7% of full year forecast respectively. We believe that despite the global economic slowdown and declining demand for Scientex's packaging, the company's overall performance will be offset by the consistent and enduring demand for its affordable housing. Maintain a BUY call on Scientex, with higher TP of RM4.15.

• Inline. FY23 core PATAMI of RM462.5mn was within our and market expectations, accounting for 97.5% and 99.7% of the full-year forecast, respectively.

• Dividend. The Group declared a single-tier final dividend of 5sen per share during this quarter, bringing a total dividend payment of 10sen per share for FY23. This translates into 2.5% at the current share price.

• QoQ. Revenue increased by 7.5% QoQ, but operating profit (OP) saw a slight decline of 0.7% QoQ. This improvement in revenue was mainly driven by the better performance of the Property segment (revenue: +24.9% QoQ, OP: +18.3% QoQ), despite disappointing results from the Packaging segment (revenue: -2.5% QoQ, OP: -45.4% QoQ). Note that Scientex recognized a goodwill impairment of RM22.7mn related to its operations in Myanmar for this quarter.

• YoY. Revenue and OP declined by 3.6% YoY and 16.9% YoY, primarily due to the subdued performance of the Packaging segment, which saw a 16.9% YoY decrease in revenue and a 61.3% YoY decline in OP. Despite resilient earnings from the Property segment, which had a 21.9% YoY increase in revenue and a 7.5% YoY increase in OP, it was not enough to fully offset this decline. Additionally, the PBT margin declined by 2ppts YoY, mainly due to increased energy costs, particularly in electricity, despite stable raw material prices, specifically resin.

• YTD. For the FY23, both revenue and OP increased by 2.3% YoY and 5.1% YoY, respectively. The encouraging performance came from the Property segment, with revenue and OP up by 29.1% YoY and 25.6% YoY, respectively. The Group also shared that its unbilled sales for FY23 amounted to RM1.76bn, with a takeup rate of over 80%.

• Outlook. The Group foresees a rebound in the Packaging segment and remains confident in strong earnings from the Property segment, driven by new projects and robust uptake. Overall, we expect sustainable earnings for Scientex, driven by strategic expansion, steady consumer demand, favourable contracts, and growth in their packaging segment. We also foresee resilient demand for their affordable houses, supported by upcoming launches in various states across Peninsular Malaysia, as well as efforts to acquire competitively priced land in strategic locations to address rising operational costs.

• Forecast. No changes to our FY24F-FY25F earnings forecast.

• Maintain a BUY, TP: RM4.15. Maintain BUY call on Scientex with higher TP of RM4.15 (RM4.00 previously) as we rolled our valuation to FY25F. Overall, we like Scientex due to its: i) organic expansion and M&A activities for potential longterm growth, ii) strong position as an affordable housing developer, and iii) high commitment to sustainability and the environment in their plastic product offerings.

Source: BIMB Securities Research - 21 Sept 2023