The right move, again! We have called a TRADING BUY on Scientex Berhad ('SB') on 5th October after its announcement of the acquisition of two subsidiaries from GW Plastics ('GWPB') as we saw a potential upside for the company then when the share price was only traded at RM2.54. Within weeks, the share price is now trading at RM3.03 (way above our fair value of RM2.80, which based on our proforma post acquisition FY13 EPS of 52 sen, translates to a current PER of 5.4x). This means a handsome capital gain of 19.3%.

Time to take profit.The stock is now trading at 5.8x and 7.6x PER based on the post-acquisition and pre-acquisition FY13 EPS respectively. As compared to the plastic packaging industry's average FY13 PER of 8.0x, the stock is hence pretty much fairly valued at this juncture. We believe the stock will have further upsides only upon completion of the acquisition, when investors will have a clearer picture on the advantages of the acquisition and may thus be willing to pay higher premiums on the stock.

Alternative plays. Thus, we believe that investors who have exposure in this stock should take profit at the current market levels and also given that there are other plastic packaging stocks which will likely play the same catch-up game to close their gaps with SB, as well as GWPB (Fwd PER of 8.8x). As a result, we suggest investors to switch to the other industry incumbents such as Tomypak (TRADING BUY: FV: RM1.30) and Thong Guan (TRADING BUY: FV: RM1.57), which are still trading at undemanding PERs of 6.4x and 4.8x respectively.

Strength: Strong fundamental and unique business model of industrial packaging and property development.

Weaknesses:Higher than expected raw material cost for industrial packaging, resulting in lower margins.

Opportunities: JV with Mitsui Chemical on the manufacturing of Solar EVA films. Developing mid to high-end residential areas in South Malaysia and Iskandar Region, with its pipeline projects of RM1.7b lasting till 2020.

Threats: Gloomy economic condition that will directly hit the plastic packaging industry outlook.

Resistance:RM3.11 (R1), RM3.16 (R2)

Support: RM2.94 (S1), RM2.72 (S2)

Comments: Following the price surge, Scientex's indicators have now entered into heavily overbought levels. The share price is also seen consolidating in the uncharted territory and we reckon any upsides from here will be limited in the near term. Look to take profit.

Scientex Bhd ('SB') was established in 1965 to manufacture and market polyvinylchloride (PVC) leather cloth and sheetings. Since then, SB has expanded into stretch film and PP strapping band and has become one of the world's top five stretch film producers on the back of an annual capacity of 120,000MT. The company has also diversified into property businesses in 1993, with a few on-going mixed development projects mainly in Southern Malaysia.

Manufacturing

- Stretch Film: 9 production lines to support 120K MT p.a. capacity; 58% of group's manufacturing revenue on the back of 85% utilisation rate for FY12; 95% export; plant located in Pulau Indah.

-PP Strapping Band:12 production lines to support 24K MT p.a. capacity; 11% of the group's manufacturing revenue on the back of a 85% utilisation rate in FY12; 99% export; its plant is located in Melaka.

Source: Kenanga