1QFY21 core earnings of RM92.2m came in within our and consensus estimates at 20% each. No dividend as expected. We make no changes to FY21-22E earnings of RM456-478m, on the back of RM1.3-1.4b property sales. Maintain MARKET PERFORM but on a higher TP of RM11.35 as we increase our property segment PER to 12.5x (from 10.0x) in line with Johor based peers.

FY20 core net profit of RM92.2m came in within our and consensus expectation at 20%, each. No dividend, as expected.

Results’ highlight. YoY-Ytd, top-line was down by 9% on lower manufacturing sales due to the slowdown in global economy while property sales was rather flattish (-1%). However, EBIT margins improved by 2.3ppt on better margins from better product mix from the manufacturing segment. All in, CNP was up by 13% on lower finance cost (-57%) and lower tax rate of 22% (vs. 24%). QoQ, topline was down by 16% on weaker contributions from both segments but mainly due to the property (-34%) on lower progress billings during the quarter. As a result, CNP was down by 41% due to significantly weaker property contributions given that the segment commands superior margins vs. manufacturing. Net gearing remained low at 0.25x.

Outlook. The Group is targeting affordable project launches going forward, with our sales target of RM1.3-1.4b in FY21-22 targeting B40 and M40 groups, while unbilled sales of RM760m provides less than one year of visibility. Its manufacturing segment is focused on ramping up utilization, targeting c.75% over the next few years, mostly from its BOPP plant and Arizona plant in the United State on the back of RM150m capex on manufacturing segment in FY21, with another RM150m spread out over FY22-23. SCIENTX two-for-one bonus shares issuance and issuance of up to 103,372,974 free warrants on the basis of one free warrant for every 5 shares has been approved and is expected to be completed by 1QCY21.

Maintain FY21-22E CNP of RM455-RM478m. FY21-22E dividend of 25.5-26.8 sen is based on pay-out ratio of 30%, implying yield of 2.1- 2.2%.

Maintain MARKET PERFORM but on a higher TP of RM11.35 (from RM10.00) and a post bonus adjusted TP of RM3.78. Our TP is increased post adjusting our Property segment PER to 12.5x (from 10x) in line with Johor based property peers, and an unchanged 15x applied PER for the manufacturing segment which is at a slight premium to its industrial peer TGUAN (14.5x PER) given SCIENTX superior size allowing for economies of scale. We are comfortable with our MP call given the share price run up of 27% since our last results note, while we believe upsides are limited at this juncture given the lack of strong re-rating catalyst.

Risks to our call include; (i) higher/lower-than-expected resin cost, (ii) weaker product demand from overseas, (iii) weaker/stronger-thanexpected property sales, and (iv) foreign currency risk from weakening Ringgit.

Source: Kenanga Research - 18 Dec 2020