Scientex reported a decent set of results: 9MFY19 core net profit grew 17% yoy to RM219m on better performance from both the manufacturing and property segments. Overall, Scientex’s 9MFY19 results was within market and our expectations. We believe the usual stronger second half will prevail on the back of higher demand for its packaging products and new property launches moving forward. We lower our TP to RM9.90 (from RM10.10) as we cut our FY19-21E core EPS forecasts by 2% after incorporating the acquisition of Daibochi. Reiterate BUY.

9MFY19 Core Net Profit at RM219m, Within Expectations

Scientex’s 9MFY19 core net profit rose by 17% yoy to RM219m, driven by higher contribution from the manufacturing and property divisions. The property’s EBIT grew by 12% yoy to RM174.4m from the steady progress billings for its existing and new development projects in Senai, Pulai, Melaka and Rawang. The manufacturing’s EBIT also expanded to RM108m (+8% yoy), driven by higher revenue from the export (+62% yoy) and domestic markets (+15% yoy). Overall, the results are within market and our expectations – 9MFY19 core net profit accounts for 71- 72% of street’s and our full-year profit forecasts. Elsewhere, management has declared an interim dividend of 10 sen for 3QFY19 (3QFY18:10 sen).

Sequentially Higher by 16%

Excluding a forex loss of RM14m, Scientex’s 3QFY19 core earnings rose by 16% qoq to RM87m on higher revenue (+8% qoq) and an uptick in EBITDA margins (+0.6ppts to 17% as the property segment saw higher margins). However, this was partly offset by the weaker contribution from manufacturing segment (-14% qoq) on weaker margins due to unfavourable sales mix this quarter.

Cut FY19-21E EPS Forecasts by 2%; Maintain BUY

We have cut our FY19-21E EPS forecasts by 2% after incorporating (i) the consolidated figures from the acquisition of 61.9%-stake in Daibochi and (ii) the higher share base. As such, we cut our TP to RM9.90 (from RM10.10) based on our SOTP valuation (17x FY20E PER for manufacturing; 40% discount to property RNAV). At 13x FY20E PER, Scientex’s valuations look appealing. Key downside risks to our call include: (i) higher-than-expected resin costs, (ii) weaker export sales and (iii) weaker-than-expected property sales.

Source: Affin Hwang Research - 27 Jun 2019