SCIENTX is proposing to acquire 528 acres of land in Paya Rumput, Melaka from Genting Plantations (OP; TP: RM6.30) for RM333.8m cash. The intention is to utilise the land for mixed-property development project focusing on affordable homes. We estimate that SCIENTX is paying a fair price for the piece of land. We maintain our forecasts but tuneup our TP by 2% to RM4.24 (from RM4.15) after accounting for the potential increase in RNAV. Maintain MARKET PERFORM call.

SCIENTX is planning to acquire three parcels of contiguous freehold land measuring 528 acres altogether. Located in Paya Rumput, Melaka the seller is Genting Plantations and the total consideration is RM333.8m cash, which translates to RM14.50 per sq ft (psf). The proposed acquisition is expected to be completed in 2HCY25.

SCIENTX intends to use the land for a mixed property development project. Essentially, SCIENTX plans to build on the success it has enjoyed in focusing on affordable homes segment in Melaka. When launched, this will be SCIENTX's fourth project in the state. The new land bank is well connected to major highways such as the Sungai Udang - Paya Rumput- Ayer Keroh Highway ("SPA Highway") and North-South Expressway ("NSE").

We believe SCIENTX is getting a fair deal in view of asking prices for residential land in the surrounding areas which range from RM12 to RM18 psf.

The acquisition will increase its net debt and net gearing from RM1.32b and 0.34x as at end-Oct 2024 to RM1.65b and 0.42x, respectively, but still manageable. The deal will be funded via a combination of internal funds and bank borrowings.

Forecasts. Maintained as the contribution from the new project on the land is unlikely to come in within our forecast periods while we have accounted for borrowings of RM333.8m as at end-FY25.

Valuations. Based on our observation, the group has a good track record of launching properties post land acquisition. Assuming land cost makes up 15% of project GDV, we arrive at NPV of profit for the land of RM342m. By applying a 50% discount on its potential RNAV (average for property portfolio under our coverage), we raise our SoP-TP by 2% to RM4.24 (from RM4.15). We maintain our valuation basis of 12x FY25F 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 6).

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, we believe valuations have become rich after the recent run-up in its share price.

Maintain MARKET PERFORM.

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 - 27 Jan 2025