FY16 Core Net Profit of RM248m came in within our (98%) and consensus (99%) forecasts. An interim dividend of 10.0 sen was announced, for full-year adjusted DPS of 16.0 sen, largely in line with our adjusted estimate of 16.9 sen. No change to FY17E earnings of RM292m as we introduce FY18E earnings of RM345m. Maintain OUTPERFORM call with an unchanged TP of RM6.30 based on Sum-of-Parts.

Within expectations. FY16 core net profit (CNP*) of RM248m came in within expectations, coming in at 98% of our forecast (RM253m) and 99% of consensus (RM250m). A final dividend of 10.0 sen was announced, for full-year adjusted DPS of 16.0 sen. We deem this in line with our FY16E adjusted DPS of 16.9 sen. This implies a pay-out ratio of 31%, in line with the company dividend policy of 30%.

Fruits of expansion. YoY-Ytd, CNP rose 66% largely on manufacturing improvements, both on topline (+20%) and EBIT level (+62%) on new contribution from its Ipoh acquisition, favourable USD and lower resin costs, which increased EBIT margins from 6% to 8%. Property revenue improved 26% but EBIT rose by only 7% as its focus on affordable housing reduced EBIT margin from 34% to 29%. Meanwhile, QoQ, earnings declined 6% as manufacturing EBIT halved on higher fixed costs incurred prior to the start of operations at its new BOPP plant. Property topline improved 17% and EBIT rose 27% on margin improvement (28% to 31%) on higher new launches (RM256m GDV), notably at its recently acquired Pulai land (RM129m).

Manufacturing growth to continue as the new BOPP plant is set to begin contributions in the coming 1Q17, while expansion is underway in the Rawang (+25% to 60k metric tons (MT)/year) and Ipoh (+43% to 24k MT/year) plants. The coming capacity is likely to contribute to 2H17 earnings, which we have accounted for in our forecast. In the property sector, we expect the on-going sector slowdown to persist 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.

No changes to our FY17E CNP of RM292m as we introduce our FY18E CNP of RM344m, representing an 18% earnings increase on additional consumer packaging capacities.

Reiterate OUTPERFORM with unchanged TP of RM7.57 based on Sum-of-Parts pegged to CY17E earnings. In the manufacturing segment, we maintain our applied PER of 17.6x based on our fundamental sector comparison (see our Sector Update published 7- Sep-16). In the property segment, we reiterate our applied PER of 4.0x in line with small-mid cap property players in a slow market environment.

Downside risks to our call include: (i) lower-than-expected crude oil prices, (ii) lower-than-expected property sales forecast or margins. However, we maintain our OUTPERFORM call as we expect manufacturing expansion to support earnings growth and expand margins on stronger product mix.

Source: Kenanga Research - 27 Sep 2016