SCIENTX’s FY22 results beat expectations on stronger performance from plastic packaging. The segment will continue to do well on a slight margin expansion driven by firm product prices while the cost of input resin continues to ease. Its utilisation rate is poised to rise further to 70-75% with the arrival of new foreign workers. We maintain our FY23F earnings and keep our TP relatively unchanged at RM3.32. Maintain MARKET PERFORM.

Its FY22 core PATAMI of RM413.3 beat our forecast by 8% but is in line with consensus estimates. The variation against our forecast came largely from better-than-expected performance from the plastic packaging business.

Its FY22 revenue grew by 9%. A 15% increase in sales from the plastic packaging segment (underpinned by higher sales volume and ASP), was partially offset a 3% contraction in property turnover (due to delays in new launches pending approvals from the authority). Its core PATAMI dipped 7% due to higher input costs at both the plastic packaging and property segments as well as a slightly higher effective tax rate. Its utilisation rate sustained at c.60-65% in 4QFY22 from 65% three months ago as foreign workers started to return.

Key takeaways from the briefing:

1. SCIENTX’s plastic packaging segment to continue to do well on a slight margin expansion driven by firm prices for its industrial and consumer packaging products, and continued easing of input resin costs. Its utilisation rate is poised to rise further to 70-75% with an addition of 100 new foreign workers (about one fifth of 550 workers they have applied).

2. Two new plants are completing in the 2HCY22 comprising: (i) one RM80m robotic stretch film plant in Shah Alam with a capacity of 18k MT per year by 4QCY22, and (ii) a RM60m blown film plant in Chemor by 3QCY22. This new Chemor plant has an improved layout that enhances process flow and productivity efficiency of form-fill-seal sacks used in the petrochemical industry. In addition, SCIENTX is commissioning two new cast polypropylene (CPP) lines and a metalizer machine in an existing plant that will add a capacity of 10.8k MT per year for higher barrier packaging (F&B packaging).

3. SCIENTX has embarked on the production of fully recyclable mono-material packaging products which will appeal to F&B and FMCG manufacturer as the products can help them to achieve their sustainable goals.

4. Its unbilled property sales stand at RM1.3b vs. RM1b three months ago. It is optimistic of improved sales underpinned by: (i) the reopening of the Malaysia-Singapore border (enabling Malaysians working in Singapore to return to shop for houses), and (ii) new launches in Sungai Petani, Kedah.

We maintain our FY23F earnings and introduce FY24F numbers. We keep relatively unchanged our TP at RM3.32 (see our SoP valuation on the same page). We continue to value its plastic packaging business at 14x FY23F PER, at a premium to the sector’s average forward PER of 10x to reflect its size, being one of the largest players in the region. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain MARKET PERFORM.

Risks to our call include: (i) sustained higher resin cost, (ii) recovery in demand for packaging materials from the pandemic cut short by a global recession, and (iii) prolonged labour shortages.

Source: Kenanga Research - 30 Sept 2022