SCIENTX’s FY21 CNP of RM443.8m came in above expectations at 113%/105% of our/street’s estimates of RM392m/RM422m due to stronger-than-expected revenue from its property segment while DPS of 9.0 sen also came above our DPS estimate of 7.6 sen. We raise our FY22E CNP by 4%, premised on the capacity expansion in its manufacturing segment and better progress billing from the property segment post lockdowns. Maintain MARKET PERFORM on higher TP of RM4.62 (from RM4.34).

FY21 above expectations. FY21 CNP of RM443.8m came above expectations; making up 113%/105% of our/street’s full-year estimates, mainly due to higher-than-expected revenue of RM3.6b (+3.9% YoY). FY21 DPS of 9.0 sen is also above our FY21E DPS of 7.6 sen.

YoY, revenue rose by 3.9%, as the higher property revenue (+20%), driven by higher progress billing, cushioned the lower plastics manufacturing revenue (-2%), which is attributable to lower sales volume. Group EBIT rose by 9%, mainly lifted by property EBIT (+16%), as manufacturing EBIT only rose by 1%. The plastics segment recorded a 1% rise in EBIT despite the 2% drop in revenue likely due to a better product mix. In line with the Group EBIT, CNP also rose by 9%.

QoQ, revenue fell 0.7% mainly weighed by the lower sales from the plastics manufacturing segment (-8%), which was affected by the 60% workforce limit and thus lower output, despite the 16% rise in property sales, which was fueled by higher progress billing from its on-going projects. However, the 41% rise in property EBIT, driven by lower administrative costs, outweighed the 11% drop in manufacturing EBIT, bringing Group EBIT up by 18%. Re-investment allowance from the plastics manufacturing segment lowered effective tax rate to 15% (vs. 3QFY21: 21.7%) which brought CNP up by 26%.

Outlook. We maintain our optimistic view that both segments will resume to their 100% workforce, as we gathered from management that c.97% of their workers are fully vaccinated. For its manufacturing segment, SCIENTX continues to focus on ramping up utilization and capacity expansion, as new machineries were purchased for its stretch film division (Nano 67 layer Stretch Film Cast Line and Automation machine) and converting division (Printing and Lamination machines). For the property segment, management has earmarked RM2b worth of launches for FY22 (vs. RM1.6b in FY21), while unbilled sales of RM980m provides less than one year’s visibility. As the lockdown gradually eases and economy reopens, we remain our positive view on SCIENTX on the back of: (i) strong progress billing and resumption of construction activity on the property segment and (ii) better product mix on plastic manufacturing segment, driven by growth of its nano stretch film.

Increase FY22E earnings and introduce FY23E estimates. We increase FY22E revenue/CNP by 3%/4% to account for new capacity expansion for its manufacturing segment and backed by RM980m property sales in FY22. We introduce FY23E revenue/ CNP of RM4.7b/RM579.3m. Based on a 30% dividend payout policy, FY22E/FY23E DPS is 9.7 sen/11.2 sen, implying 2.1%/2.5% yield.

Maintain MARKET PERFORM with higher SoP-derived TP of RM4.62 (from RM4.34) based on FY22 estimates. We maintain our ascribed 15.5x PER for the plastic segment, but we raised our ascribed property segment PER from 12.5x to 13x, given the better outlook from the reopening of the economy.

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

Source: Kenanga Research - 30 Sep 2021