Scientex reported a surprisingly strong set of results: FY19 core net profit expanded by 24% to RM353m on better performance from both its property and manufacturing segments. Overall, Scientex’s FY19 results were ahead of street and our expectations. We believe the increased plant utilisation rates and resilient demand for affordable housing will boost FY20-22E earnings. In view of the better-thanexpected results, we raise our FY20-21E core EPS by 7-10%. We revise our TP higher to RM10.50 (from RM9.90) based on our SOTP valuation. Reaffirm BUY.

FY19 Core Net Profit at RM352.7m (+24% Yoy); Above Expectations

Scientex’s FY19 core earnings increased by 24% yoy to RM352.7m, on the back of stronger performances from both the manufacturing and property divisions. Manufacturing revenue rose 23.8% to RM2.36bn, mainly driven by expansion in stretch film, custom film and the newly acquired converting business. Meanwhile, property sales surged 27.4% to RM889.6m, as affordable residential property launches in all its development projects continued to be well-received. Its blended EBITDA margin improved by 1.2ppt yoy to 17.6%, partly attributed to favourable sales mix and better product margins from the manufacturing segment. Overall, the results were ahead of expectations, accounting for 115% of both our and consensus earnings forecasts. The variance to our forecast was largely due to a better-than-expected contribution from the property segment, which also performed better than the overall Malaysian property market. To note, current unbilled sales of RM780m should last the group for the next 3-4 years.

Record Quarter Earnings of RM134m for 4QFY19

Scientex’s 4QFY19 core net profit rose by 54% qoq to RM134m on higher revenue (+13% qoq) and a boost in EBITDA margin (+4.8ppts to 21.8% as both segments saw improvement in margins - Fig 2). Notably, property segment EBIT rose to RM112m (+37% yoy; +60.8% qoq) from strong takeup rates from its property development projects in Johor, Melaka, Rawang and Ipoh. Elsewhere, the manufacturing segment earnings contribution doubled to RM67m on favourable sales mix and higher plant utilisation rates, which is likely sustainable on global demand for plastic packaging needs. Meanwhile, management declared a dividend of 10 sen for the quarter, bringing full-year FY19 dividend to 20 sen, unchanged from FY18.

Reiterate BUY With a Higher TP of RM10.50

Given the better-than-expected FY19 results, we raise our FY20-21E earnings by 7-10%, whilst introducing FY22E forecasts. In tandem, our TP is revised higher to RM10.50 based on our SOTP valuation (17x FY20E PER for manufacturing; 40% discount to property RNAV). At 11.5x FY20E PER, Scientex’s valuation looks appealing. Maintain BUY. Moving forward, we believe increasing utilisation rates for the manufacturing segment, coupled with resilient demand for its affordable housing projects would continue to boost the group’s earnings performance. 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 Sept 2019

Source: Affin Hwang Research - 27 Sept 2019