9MFY21 CNP of RM304m fell short of our/street’s estimates at 69% each, mainly due to weaker-than-expected revenue while DPS of 4.0 sen also came in below. Plastics and property margins dragged. In the near future, we expect plastics manufacturing margins to marginally expand as resin costs gradually decline. While the property segment proved resilient in 3QFY21, we believe FMCO will adversely affect 4QFY21 progress billings. Lower FY21E/FY22E CNP by 11%/8% and DPS accordingly. Despite the sluggish near- term outlook, we raise our SoP-TP to RM3.80 (from RM3.75) as we roll forward our valuation base to FY22E EPS of 28.2 sen, valuing property at 12.5x PER and plastics at 14.5x PER. Reiterate MP.

9MFY21 below estimates. 9MFY21 CNP of RM304m (+21% YoY) came below at 69% of our/street full year estimate. We believe the deviation was mainly due to the weaker-than-expected revenue of RM2.7b (+5% YoY), making up only 67% of our/street estimates. DPS of 4.0 sen made up 47% of our FY21E DPS of 8.5 sen, We lower dividend forecast to 7.6 sen, which still implies a higher payout as Scientex tends to pay slightly more in the fourth quarter.

YoY, 9MFY21 revenue rose by 5%, lifted by higher property revenue (+28%), mainly due to increased recognitions from new launches with strong take-up rates in Melaka, Penang, Johor and Selangor. However, lower plastic manufacturing revenue (-3%) dragged, likely due to the lower ASPs in 1HFY21, when ASPs were slow to catch up with recovering resin prices. Overall, group EBIT margin rose 16.1% likely due to cheap resins secured in 1QFY21. Lower effective tax rate of 21% (vs. 9MFY20: 25%) lifted CNP, which was up 21%.

QoQ, 3QFY21 revenue rose 7.7% to RM976.8m (vs. 2QFY21: RM906.5m), as plastics and property revenues grew 9% and 6%, respectively. However, plastics EBIT only rose by 2% as margin fell 0.6ppt, likely caused by the spike in resin prices in March. Property EBIT fell 2% as margin fell 2.4ppt, likely due to higher raw material costs. While EBIT came in flat, core PATAMI rose 8%.

Outlook. In the near term, we expect plastics ASPs to trend down in tandem with resin prices, and for plastics volumes to increase. That said, as resin prices are gradually trending down, we suspect that ASPs will be falling at a slower rate, thus expect marginal plastics manufacturing margin expansion in the near-term. The near-term outlook for the property segment remains subdued, as FMCO will likely delay progress billings in 4QFY21, and continued softer MCOs in subsequent periods may continue to hinder progress billings.

Decrease FY21/FY22 estimates. We decrease FY21E/22E CNP by 11%/8% mainly on lower revenues. Consequently, we also lower FY21E/22E DPS to 7.6/8.5 sen, yielding 1.8%/2%, respectively.

Maintain MARKET PERFORM with a slightly higher SoP-derived TP of RM3.80 (from RM3.75) as we roll forward our valuation base to FY22. We maintain our ascribed 12.5x PER for the property segment and 14.5x for the plastics segment.

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

Source: Kenanga Research - 24 Jun 2021