We are excited about Scientex’s multi-year expansion in its consumerpackaging division which would more than quadruple its initial capacityby the end of 2016 and drive a 3-year earnings CAGR of 35% in FY15-18F.Maintain BUY with a SOP-derived MYR13.05 TP (from MYR10.68, 13%upside) as we revise up our sales volume assumptions for its packagingdivision to account for a higher average utilisation rate of 80% for FY16. Fast and furious. Already the largest stretch film manufacturer in Asia andamongst the top three globally, Scientex is now embarking on a capacityexpansion spree to grow its consumer packaging capacity through a series ofacquisitions and organic expansions. We continue to highlight Scientex’simpressive feat in building up its consumer packaging to 146,400 tonnes byend-2016, from just 30,000 tonnes in 2014 (CAGR of +121%).

Exciting market opportunities. Scientex’s strategy to ramp up production ofits BOPP film capacity by ten-fold bears favourable market opportunities as thebulk of the supply catered for local demand is currently imported. We think thatthe demand for such film would be anchored by its wide application acrossthe F&B, electrical and electronics and pharmaceutical industries. Scientex’smaiden venture into the CPP film production would also allow it to cross-sell thenew product to its existing clientele due to the complementary nature of itsproducts.

Focus on affordable homes. While the property sector remains soft, we thinkthat management’s focus on affordable housing could help to anchor earnings,as demand for this segment is more resilient. For FY16, management hastargeted to launch around MYR600m worth of proj ects, which includes therollout of the first phase of development on its recently acquired land in Pulai,Johor. These affordable homes are estimated to range between MYR200,000-400,000 per unit.

Maintain BUY. We raise our forecast by 5-17% for FY16-18 to account for ahigher sales tonnage as we turn more confident on management’s guidance todeliver on the guided sales volume. We have also put in a place a higher RNAVdiscount of 40% (from 30%) to account for the softer property market in Johor.We raise our SOP-derived TP to MYR13.05, valuing its manufacturing segmentusing DCF (WACC: 8%, terminal growth:2%) and the property segment basedon a 40% discount to RNAV (from 30%) to account for the softer sentiment inthe property market.

Come Onboard a Profit Expansion Ride Expansion-powered growth We continue to highlight Scientex’s impressive feat in building up its consumer packaging capacity through a series of acquisitions and organic expansion. By end-2016, Scientex’s consumer packaging division capacity could reach 146,400 tonnes, from just 30,000 tonnes in 2014 ( +121% CAGR).

We learned that Scientex’s planned capacity expansion is well on track, as guided by management. For its Polythylene (PE) division, two of the three lines have already been installed in its Rawang plant. A commercial pr oduction run of the PE lines is expected to start approximately at the end-FY16/early-FY17. This would bring its total PE capacity to 74,400 tonnes in 2016, from just 24,000 tonnes in 2014 (CAGR: +76%). Exciting market potential for BOPP and CPP films

The construction of its new biaxially oriented polypropylene (BOPP) plant facility would catapult Scientex’s existing BOPP capacity by ten-fold to 60,000 tonnes pa. We think Scientex’s venture into BOPP production bears exciting market opportunities as the bulk of the supply catered for local demand is currently imported. We think Scientex is well-positioned to gain a market share among BOPP film users as it enjoys the advantage of: i) Quicker delivery times compared to imported films, and ii) More competitive pricing due to the economies of scales compared to other smaller players. Scientex’s new cast polypropylene (CPP) film plant in Malacca is already up and running since 2H 2015 and marks the group’s entry into the CPP film-making business. CPP film is the inner sealing layer in a lamination-based packaging. It complements the group’s existing products ie PE and BOPP films, which form the protective inner and outer layers of a flexible packaging respectively. The com plementary function of the CPP films would allow the group to leverage on its existing clientele in Malaysia and South-East Asia to cross-sell its products.

Focus on affordable housing in FY16 While the property market remains soft, we think that management’s strategy to focus on landed affordable housing would help to anchor earnings. In FY16, Scientex is targeting to launch around MYR600m worth of projects (FY15: MYR667.4m), which would include the rollout of the first phase of development of its recently acquired land in Pulai, Johor. The development would be centred on affordable homes with an estimated price range of MYR200,000-400,000 per unit. This would help to recoup the land cost of its 326-acres of land in Pulai, Johor acquired at MYR219m in 2015, which was partly financed by internal funds and the issuance of a sukuk murabahah. We also understand that the demand for its Rumah Mampu Milik Johor (RMMJ) priced between MYR80,000 -MYR180,000 per unit,launched in May 2015, has also been resilient.