Scientex reported a strong set of results: 9MFY20 core net profit grew by 22% yoy to RM266m on better property sales and higher manufacturing profit margins. As expected, the 3QFY20 results were sequentially weaker, following the disruption caused by the Covid-19 pandemic. Overall, the results were in line with consensus but above our expectations. We raise our FY20-22E earnings by 10-14%, and our 12-month TP to RM11.20 (from RM10). Reaffirm BUY.

As Expected, Earnings Were Sequentially Weaker Due to MCO

Scientex’s 3QFY20 core earnings fell by 17% qoq to RM83m on weaker revenue, a result of the halt in operations caused by the Covid-19 Movement Control Order (MCO), as well as a higher effective tax rate. On a segmental basis, the property’s 3QFY20 EBIT dropped by 38% qoq to RM47m due to disruption of business operations during the MCO period. The manufacturing’s 3QFY20 EBIT was also weaker by 9% qoq as the Group’s manufacturing entities were allowed to operate at only minimal capacity during the MCO period to comply with the stringent conditions imposed by the authorities.

9MFY20 Core Net Profit Rose by 22% Yoy

Despite the softer 3QFY20 results, Scientex’s 9MFY20 core net profit rose by 22% yoy to RM266m on better performance from both manufacturing (+66% yoy, thanks to the contribution from Daibochi’s converting business) as well as its property division (+7% yoy, due to new launches in Melaka and Johor). Notably, the 9MFY20 blended EBITDA margin improved by 2ppts yoy to 18.1%, attributable to the favourable sales mix and cheaper resin cost from the manufacturing segment. All in all, the results were within street expectations but ahead of ours, accounting for 72% and 85% of the respective full-year forecasts. The earnings surprise was due to better-than-expected contribution from the manufacturing segment. Scientex has declared an interim dividend of 10 sen (3QFY19: 10 sen).

Property: Development Activities Have Restarted Post-MCO

Per the 3QFY20 results announcement, the Group expects its sequential results to be better with the relaxation of the movement control – constructional and property development activities have restarted for the property segment, and we think the near-term property numbers will be supported by the current unbilled sales of RM730m and target GDV of RM1bn (from previous target of RM1.1bn). The Group has also increased the use of digital platforms to reach out to potential buyers, in addition to its traditional sales platform/showrooms.

Source: Affin Hwang Research - 24 Jun 2020