Kenanga Research & Investment

Scientex - Property Upstages Packaging

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Publish date: Mon, 24 Jun 2024, 10:33 AM

SCIENTX’s 9MFY24 results met expectations. Its 9MFY24 core net profit rose 23% YoY driven largely by strong property profits, partially offset by weak packaging exports. We see a similar earnings trend going forward. We maintain our forecasts, fine-tune up our TP by 1% to RM4.00 (from RM3.95) and reiterate our UNDERPERFORM call.

Its 9MFY24 core net profit of RM398.6m met expectations at 73% of both our full-year forecast and the full-year consensus estimate.

However, SCIENTX declared a DPS of 6 sen in 3QFY24 (vs. 5 sen in 3QFY23) that exceeded our expectation.

YoY, its 9MFY24 revenue grew 10% fueled primarily by its property division (+37% YoY) on strong progress billings and new sales, including those from new launches in Sungai Dua (Penang), Jenjarom (Selangor), and Jasin (Melaka), partially offset by softer packaging turnover (-3% YoY) on weak exports. Its core net profit rose by a sharper 23%, thanks to an improved packaging product mix and operational efficiency.

QoQ, its 3QFY24 top line was flattish while bottom line softened by 3% due to lower margins at both packaging and property units.

Outlook. We expect soft earnings outlook for its packaging segment due to a weak export market and high energy cost, partially cushioned by savings from a 21-MWp solar photovoltaic (PV) system which should be operational from Jan 2025. On a brighter note, the sales of its affordable properties will continue to be robust. Meanwhile, its acquisition of land in Muar (Johor) is expected to be completed by 2HCY24, while those in Bestari Jaya (Selangor), Seberang Perai Selatan (Penang), and Pulai (Johor) in 1HCY25.

Forecasts. Maintained. However, we raise our FY24-25F annual dividend forecasts to 12.0 sen and 12.5 sen, respectively (from 10.6 sen and 11.0 sen).

Valuations. We fine-tune up our TP by 1% to RM4.00 (from RM3.95) after we recalibrate our valuations for its property business (see Page 3). Our revised TP values its packaging business at an unchanged 12x FY25F PER, 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 its competitiveness in the global plastic packaging industry given its size and low-cost structure (especially, as compared to its overseas rivals), and strong foothold in the affordable housing segment in Johor. However, we believe valuations have become rich after the recent run-up in its share price.

Reiterate UNDERPERFORM.

Risks to our call include: (i) a stronger and sooner recovery in the global economy, (ii) easing of input costs, and (iii) lower mortgage rates improving affordability for its properties.

Source: Kenanga Research - 24 Jun 2024

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