SCIENTX is acquiring 826-acre land in Mukim Batang Berjuntai, Kuala Selangor, for RM336m cash. We are positive on the acquisition which allows SCIENTX to expand its footprint in affordable housing in the northern part of Selangor. We maintain our forecasts but raise TP by 3% to RM3.75 (from RM3.63). Reiterate MARKET PERFORM.

SCIENTX is acquiring a parcel of freehold land measuring 826 acres in Mukim Batang Berjuntai, Kuala Selangor from Metalplex Plantation Sdn Bhd for RM335.7m cash. The proposed acquisition is expected to be completed in 1HCY25.

It intends to build a mixed property development on the land located between Ijok Town and Bestari Jaya Town. The land is in close proximity to its existing projects such as Scientex Kundang Jaya (25km) and Scientex Rawang (36km), allowing it to tap into its existing resources.

At RM335.7m, the price tag translates to RM9.33 per sq ft (psf), which is at a discount to the asking prices for agricultural land in the surrounding areas of RM12-13 psf. We believe the discount could be attributed to the location being at a distance away from the Kuala Selangor town area, potentially a low land efficiency (i.e. sellable land as a percentage of total land area) owing to land use restrictions and therequirement for additional investment in basic amenities.

We are also positive on the deal as it allows SCIENTX to expand its footprint and build upon its success in affordable housing in the northern part of Selangor.

The acquisition will increase its net debt and net gearing from RM515m and 0.15x as at end-Oct 2023 to RM851m and 0.24x, respectively, but still highly manageable.

Forecasts. Maintained as the contribution from the new project on the land is unlikely to come in within our forecast period.

Valuations. However, we raise our SoP-TP by 3% to RM3.75 (from RM3.63) as the Batang Berjuntai land increases our valuation by RM179m based on a 50% discount its potential RNAV. We maintain our valuation basis of 12x FY24F PER for its packaging business, at a premium to sector’s average forward PER of 10x to reflect its size, being one of the largest players in the region. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like SCIENTX for: (i) its competitiveness in the global plastic packaging industry given its size and low-cost structure (especially, as compared with its overseas rivals), and (ii) its strong foothold in the affordable housing segment in Johor. However, its plastic packaging business, which contributes about a third of its earnings, is likely to be weighed down by the sluggish global economy over the near term. Maintain MARKET PERFORM.

Risks to our call include: (i) a sudden spike in resin prices, (ii) weak consumer demand for packaging materials due to prolonged global economic downturn, and (iii) high inflation, elevated mortgage rates and a weak job market, hurting demand for its properties.

Source: Kenanga Research - 11 Mar 2024