Scientex Berhad (SCIENTX)?s 1Q17 CNP at RM52m came in at 16% and 18% of consensus and our forecasts, respectively. We deem this broadly as within expectation as we are expecting stronger contribution from its new BOPP plant in coming quarters. No dividend was declared, as expected. As we expect no change in earnings our OUTPERFORM call and TP of RM7.57 are maintained.

1Q17 broadly within. 1Q17 CNP at RM52m came in at 16% of consensus? RM318m forecast and 18% of our RM292m forecast. We deem this as broadly within, as we expect the newly commissioned BOPP plant to ramp up its utilization over the next few months which should lead to revenue and margin improvement going forward. No dividend was announced, as expected.

Temporary setbacks. YoY, 1Q17 CNP declined 19% largely on weaker Manufacturing EBIT (-37%) as margins slipped to 6% (from 10%) on the commencement of new consumer product plants, as well as management?s strategy to gain market share via price competition. Industrial packaging revenue also softened by 7% due to slower orders, in line with the weaker export market. Meanwhile, Property earnings were slightly lower (-5%) on launch timing and different affordable product mix. QoQ, 1Q17 CNP softened 8% mainly on lower Property earnings (-22%) due to lower launches, but this was partly offset by Manufacturing improvement (+49%) on the gradual ramp-up of its new plant.

Expect pick-up in coming quarters. We believe the continued ramp-up of the BOPP plant as well as expansion in the Rawang (+25% to 60k metric tons (MT)/year) and Ipoh (+43% to 24k MT/year) plants should contribute to a stronger 2H, while long-term growth should be sustained by its new venture into the United States (due 2H18). We are long-term positive on this project as it will allow the company to penetrate into a new market outside its existing major exposure to the Japanese market. Furthermore, we expect to see cost savings in its new plant from the anticipated ample supply of shale gas-based resin, as well as lower distribution costs in the American market. We also note that the recent sharp appreciation of the USD could provide potential upside to exporters, including SCIENTX and other plastic segment peers, as exports are largely denominated in USD across the sector. Meanwhile, on the Property side, management noted that its Pulai project contribution should start in subsequent quarters, with sustained sales in the medium-term.

No change to our FY17-18E CNP of RM292-345m as we expect earnings improvement in the coming quarters.

Maintain OUTPERFORM and TP of RM7.57 based on Sum-of-Parts pegged to CY17E earnings. For the Manufacturing segment, we maintain an applied PER of 17.6x, while for the Property segment, we apply a PER of 4.0x which is in line with small-mid-cap property players during this slow market environment. Potential risks to our call include lower-than-expected crude oil prices or weaker Property sales. Nevertheless, we reiterate our OUTPERFORM call as we expect continued ramp-up of new facilities, better product mix and stronger USD to benefit margins in the coming quarters.

Source: Kenanga Research - 16 Dec 2016