S & P Results Review & Earnings Outlook

? Scientex?s 1HFY10 (Jul) results were broadly within our expectations with net profit of MYR25.7 mln reaching 53% of our FY10 projections.

? 1HFY10 revenue grew 24% YoY to MYR323.6 mln on increased contributions from both manufacturing and property development divisions. Meanwhile, net profit rose by a substantial 96% YoY due to greater economies of scale and higher profit margins for its residential houses. Consequently, 1HFY10 net profit margin rose to 7.9% from
5.0% in the previous corresponding period.

? For the manufacturing division, management continues to experience pickup in demand for its industrial packaging products. Moreover, the inclusion of a new production line, which was commissioned in January 2010, added approximately another 1,500 mt/month in capacity and lowered overall production fixed costs.

? As for the property segment, the group?s focus on building affordable houses remains successful with 1HFY10 turnover rising 45% YoY to MYR60.1 mln despite the generally soft property market in Johor. Scientex?s property projects are located in Pasir Gudang and Kulai.

? We retain our FY10 and FY11 net profit forecasts of MYR48.4 mln and MYR53.5 mln, respectively.

Recommendation & Investment Risks
? We maintain our Buy recommendation on Scientex with a higher 12-month target price of MYR1.80 (from MYR1.70).

? We derive our target price by ascribing a target PER multiple of 7x (unchanged) against its FY11 earnings (rollover from CY10), inclusive of a projected dividend. The target PER multiple is benchmarked against its manufacturing peers and is also within the 5x-8x PER valuation range for property companies under our coverage.

? We remain positive on Scientex?s prospects, underpinned by the rising demand for its industrial packaging products and residential developments. We believe the group is well-poised to benefit from the ongoing recovery from the global financial crisis. Its earnings delivery has been resilient despite the recent economic downturn. Operations are also backed by a solid balance sheet, with NTA/share of MYR1.80 and net gearing of 0.1x as at January 2010. Considering the group?s
expected healthy earnings growth and strong fundamentals, its prospective 6.1x FY11 PER remains undemanding, in our opinion.

? Risks to our recommendation and target price include a reversal in the demand uptrend for its manufacturing division and softer-thanexpected take-up rates for its property launches.