A SCIntillating Quarter; Reaffirm BUY

Scientex reported a good set of results – 1QFY20 core net profit of grew 45% yoy to RM83m on better performance from both property and manufacturing segments. Overall, the results were within market and our expectations (accounting for 21-22% of full year estimates) as we expect stronger property billings and higher production volumes in the coming quarter. Key drivers for Scientex – i) increasing utilisation rates and cheaper production costs for the manufacturing segment; ii) resilient demand for its affordable housing projects. There are no changes in our earnings forecasts. We maintain our BUY rating and 12-month SOTP of RM10.50.

1QFY20 Core Net Profit Grew by 45% Yoy, Within Expectations

Scientex’s 1QFY20 core net profit rose by 45% yoy to RM83m on higher revenue (+23% yoy; Fig 2) and a higher EBITDA margin (+2.7ppts to 16.8%, on higher manufacturing margins with cheaper resin costs and better production efficiency). Notably, manufacturing segment EBIT rose by 55% yoy to RM55m, driven by continued demand from export (+9% yoy) and domestic markets (+27% yoy; also partly lifted by subsidiary Daibochi’s contribution). Elsewhere, the property segment’s EBIT expanded by 58% to RM63m from the steady progress billing recognised for its development projects. All in, the results were within street and our expectations, accounting for 21-22% of full-year earnings forecasts.

Weaker Profits Sequentially, But Expected

Scientex’s 1QFY20 core net profit fell by 38% qoq due to the high base seen in 4QFY19 (which was a record quarter). With a sequential decline in 1QFY20’s progress billing, we saw the property division’s EBIT pulling back by 44% qoq to RM63m. With 1Q being a seasonally weaker quarter, we are expecting upcoming quarters to see some improvement in property numbers, underpinned by current unbilled sales of RM700m and the target GDV of RM1.1bn (est. 4.4k units across 20 property launches).

Manufacturing: Ramping Up Utilisation, Expanding in US Market

Scientex is currently focused on ramping up its utilisation rate, with a target to achieve at least 70% in FY20E (vs. 1QFY20: 65%), driven by its BOPP plant and Arizona plants and through higher process automation at its plants. Post briefing, we also learnt that Scientex has made further inroads into the US market, via the acquisition of stretch film plants in Lancaster, South Carolina State, Eastern USA (no machines installed yet).

Source: Affin Hwang Research - 18 Dec 2019