Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit (CNP) of RM149.2m came in within consensus forecast (RM156.3m) at 95% but slightly above ours (RM140.7m) at 106%, likely due to higher-than-expected margins from its new consumer packaging lines.

Property sales at RM515.7m exceeded our forecast by 11% due to higher volume of affordable housing launches.

The group also recorded a revaluation gain on investment properties of RM12.6m, which was excluded from our CNP calculations.

Dividends

A final dividend of 13.0 sen was declared, bringing FY15 NDPS to 22.0 sen (3.1% yield), higher than our expected 19.5 sen. This represents 31% of EPS, meeting its 30% dividend payout policy. Key highlights

YoY, FY15 CNP at RM149.2m was flat. Although Property EBIT improved 45% to RM175.4m and Manufacturing EBIT increased 12% to RM76.8m, overall earnings were dragged down by RM27.2m of forex loss realised as the company pared down its USD borrowings by 80% to RM55.9m. The company also saw higher effective taxation (from 19% to 27%) due to timing of its deferred tax recognition, which should normalise in the next financial year.

QoQ, 4Q15 CNP declined 7% to RM39.9m due to the aforementioned higher tax rate. Otherwise, PBT improved 36%, driven by higher Property EBIT, which increased 48% to RM61.6m due to one-off revaluation gains. Excluding the revaluation, Property EBIT would have only increased 18% to RM49.0m on higher affordable housing sales. Manufacturing EBIT rose 24% as margin increased from 6% to 8% due to higher sales of more profitable consumer products.

Outlook

The expansion of its CPP (total 12k MT p.a.) and BOPP films (total 60k MT p.a.) capacities for its consumer packaging division is on track and expected to be completed by end-2015 and mid- 2016, respectively. We expect the earnings contribution to increase FY16 revenue by 8% and improve margins from 8% to 9%.

The overall property market is expected to be challenging in 2015, especially in Johor. Going forward, we think the property segment’s sales trend could slacken due to tighter lending policies and poor market sentiment. However, SCIENTX is targeting to launch more affordable houses (c.90% of total launches) in the next two years which should provide some earnings resiliency.

Change to Forecasts

FY16E CNP increased by 9% to RM173.4 after imputing earnings contribution from SCIENTX's new production lines. We also introduce our FY17E CNP of RM198.7m.

Rating

UNDER REVIEW (previously UP)

Valuation

We place our recommendation UNDER REVIEW (previously TP at RM6.68 based on SoP with Manufacturing segment at 14x FY16E EPS) as we are in the midst of re-evaluating our sector valuation basis for our upcoming 4Q15 Strategy report. While we expect a positive bias on its TP due to the earnings upgrade, we expect to maintain our call as we reckon that its valuations remain fairly rich, while investors are generally more wary of potential earnings risks from property division. Furthermore, we expect a stronger USD to be negative to SCIENTX due to its negative net dollar exposure. Note that SCIENTX is trading at a 12% discount to the peers’ average PER of 12.0x which we think is justified by its lacklustre Property segment outlook.

Risks

Lower-than-expected crude oil prices,

Better-than-expected property sales forecast and/or margins.

Source: Kenanga Research - 30 Sep 2015