• Maintain BUY, with new MYR4.31 TP from MYR4.12, 24% upside and c.3% yield. Scientex’s FY22 results were in line with expectations, with the group reporting lower YoY earnings from compressed margins. However, we think margins will recover as raw material prices normalise. Valuation is still attractive, as the stock is trading at -1SD from its historical P/E mean, and the group’s long-term prospects remain solid, supported by strong demand for plastic packaging and affordable housing.

• Results in line. 4QFY22 core net profit of MYR118.8m (+37% QoQ, -15% YoY) brought full-year earnings to MYR402m (-11.6% YoY). This was in line with expectations at 104% and 98% of our and consensus’ estimates. EBIT margin recovered to 15.5% during the quarter (3Q22; 12.2%) as raw material prices came down from the peak in April. Scientex declared a dividend of 5 sen/share, bringing the total to 9 sen/share for the year.

• Results review. 4QFY22 revenue improved by 11.8% QoQ to MYR1.1bn (FY22 revenue: +9% YoY), marking the group’s highest quarterly revenue to date. This was on the back of strong demand for the packaging segment in both domestic and export markets. However, despite a 14.8% higher YoY packaging revenue in FY22, operating profit for the division fell 6% due to raw material price volatility. The property division missed its original target to launch MYR2bn GDV in FY22, only managing MYR1.2bn (FY21; MYR1.5bn). This was mainly attributed to deferred government approvals which delayed launches. As a result, the property division’s revenue fell 3.5% YoY, and operating profit was lower by 6.9%.

• Outlook. We expect to see improving margins for the packaging division moving forward, as resin prices have retracted 15% YTD, or 27% from the peak in early April. Scientex’s new robotics stretch film plant is expected to commence production in 4QCY22 with a capacity of 18,000MT pa, bringing the division’s total capacity to 450,000MT pa. The utilisation rate is currently at c.63%, with management hoping that it could improve to 70% in FY23 as foreign workers slowly return. On the property side, management refrained from providing a target GDV for FY23 due to the operating challenges – however, we foresee demand remaining strong, with take-up rates for new launches in FY22 ranging at 75-85%.

• We adjust FY22F-24F earnings by -5 to -8%, as we lower our property sales assumption. We also lower our ascribed P/E for the manufacturing segment from 14x to 12x to reflect the more cautious market sentiment. Rolling forward our valuation to FY24, we derived an SOP-based TP of MYR4.66 and incorporated a 4% ESG premium based on our in-house methodology (bringing our TP to MYR4.31). We have raised the ESG score to 3.2 following the group’s inclusion into the FTSE4Good Bursa Malaysia Index in June. Downside risks to our call: Higher-than-expected costs, weaker product demand, and softer property sales.

Source: RHB Research - 30 Sep 2022