9M16 core earnings of RM191.4m came in well within both our (76%) and consensus (75%) expectations. An interim dividend of 12.0 sen was declared, which made up 39% of our FY16E NDPS of 33.8 sen. SCIENTX intends to add another 3.6m MT of PE film capacity in its Rawang and Ipoh plants which is expected to start contributions in 2H17. We make no changes to FY16-17E earnings of RM253-292m. Maintain TP at RM13.25 (exbonus RM6.63) and our MARKET PERFORM call.

9M16 core net profit (CNP*) of RM191.4m came in well within both our and consensus expectations at 76% and 75%, respectively. As expected, an interim dividend of 12.0 sen was declared, which made up 39% of our FY16E NDPS of 33.8 sen. Management has a 30% dividend payout policy which will mostly be paid out in 4Q16.

Results Highlights. SCIENTX saw strong Ytd-YoY growth (+75% CNP) mainly driven by strong topline growth from both segments, and on lower effective tax rates of 19% (vs. 22% in 9M15) on tax incentives from reinvestment allowances. The growth in the Manufacturing segment came from better sales and margin improvement (+4ppt) resulting from better product mix and higher export sales, as well as contributions from SGW Ipoh, while growth in the Property segment was driven by new projects launched in Kulai 2, Senai and Pasir Gudang. QoQ earnings were unexciting (-10% CNP) as topline was flattish, while bottomline was dragged down by higher finance cost (18%) and lower interest income (-74%).

Outlook. For the manufacturing segment, SCIENTX intends to add another 3.6m MT of PE film capacity in Rawang and Ipoh in addition to its existing expansion plans. The new capacity is expected to contribute to 2H17 earnings which we have already accounted for. For the property segment, we expect the on-going sector slowdown to persist in 2016 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. Additionally, SCIENTX has obtained the approvals for the 1-for-1 bonus issue, which is targeted for completion in 3Q16. We make no changes to our FY16-17E CNP of RM253-292m.

We maintain our TP at RM13.25 (ex-bonus RM6.63) and maintain our MARKET PERFORM call based on Sum-of-Parts (SoP) methodology for CY17, in line with the sector. For the manufacturing segment, we use an applied PER of 14.0x, which reflects higher future contribution from consumer packaging products. Post-expansion, the consumer packaging capacity is expected to make up c.50% of total capacity, from 38% currently. Our applied PER reflects a 10% discount to pure consumer packaging players’ applied PER of 15.5x. As for the property segment, we use a target PER of 5.0x as we think that PER is more appropriate for small-mid cap property players in a slower market environment. Our target PER is in line with the peers’ average. Downside risks to our call include: (i) lower-thanexpected crude oil prices, (ii) better-than-expected property sales forecast or margins.

Source: Kenanga Research - 2 Jun 2016