1QFY16 (Jul) core profit of MYR64.3m exceeded our/consensus’s expectations, at 33.7%/35.1% respectively; it was driven mainly by its PE film division’s higher sales tonnage and new capacity from SGW Ipoh. Maintain BUY with a higher MYR10.68 TP (from MYR8.30, 17% upside). We are excited about its prospects, which would be anchored by its consumer packaging division’s incoming capacity expansion over the next few years.

Above expectations. Scientex’s 1QFY16 (Jul) results were above our and consensus’s expectations, at 34% and 35% respectively. The stellar results came on the back of stronger monthly sales tonnage (+34.3% YoY) from the ongoing expansion of its consumer packaging division and new capacity from the recently acquired Scientex Great Wall (Ipoh) (SGW Ipoh). SGW Ipoh contributed MYR3.5m to its 1QFY16 earnings since the acquisition was completed in August. Revenue from its property segment (+43.2% YoY) was driven by the progress billing from The Garden Residences in Taman Mutiara Mas and across all of its other development projects in Johor and Malacca. Unbilled sales stood at MYR632.2m in 1QFY16.

New plants are on track. Scientex’s new cast polypropylene (CPP) plant is currently in the trial production phase and on track for commercial production run by end 2015. Its bi-axially oriented polypropylene (BOPP) plant is 90% completed and slated for operation by mid-2016. It is also targeting to expand its Polyethylene (PE) film capacity by another 20% by mid 2016. The new plants coming online would double its consumer packaging division capacity within the next one to two years. For the property division, we think management’s focus on affordable housing oing forward would suit the current market appetite but we continue to be cautious of the short-term prospect of Johor’s property market.

Maintain BUY with a higher TP of MYR10.68. We revise up our FY16F-18F earnings by 18.1%-22.2% after accounting for stronger sales tonnage from its consumer packaging division and updating our USD/MYR assumption from 4.15 to 4.34. We reiterate BUY on the company with a SOP-derived TP of MYR10.68, which corroborates with our DCF valuation (see Figure 5). We favour Scientex as it has strong visible growth drivers, underpinned by the ongoing expansion of its consumer packaging division and steadily rising sales of its industrial packaging segment.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Scientex is a manufacturer of industrial packaging with manufacturing facilities in Malaysia and Vietnam. It also has a property development arm with projects concentrated in Malaysia’s southern region.

Recommendation Chart

Source: RHB Research - 18 Dec 2015