• Maintain NEUTRAL, new SOP-based MYR3.75 TP from MYR3.85, 4% upside and c.4% yield. Scientex reported 1QFY24 (Jul) results that were in line with expectations. Its double-digit YoY earnings growth was driven by robust demand for its affordable housing offerings, which more than offset the decline in its packaging sales. We think Scientex remains fairly valued, trading at 10x – in line with its historical mean.

• In line expectations. 1QFY24 net profit of MYR138.3m (-0.5% QoQ, +29% YoY) came in line with expectations at 26% of our and consensus’ full-year estimates. Contributions from the packaging segment continues to slide YoY amidst softer global demand, but this was more than offset by the improving property segment. Consequently, 1QFY24 EBIT margins improved to 17% (FY23: 14.5%).

• Results review. 1QFY24 revenue improved 7% YoY (+3% QoQ) on the back of stronger contributions from property development projects. However, the packaging segment saw lower sales – mainly from the consumer packaging sub-segment amidst weaker global trade sentiments. Operating costs were also higher due to elevated energy costs and depreciation from Scientex’s capacity expansion. Consequently, while packaging revenue declined 9% YoY, operating profit fell by a higher 11% YoY due to slightly lower margins. On the property side, revenue and operating profit rose 45% and 60% YoY thanks to the smooth construction progress on top of strong take-ups from new launches.

• Outlook. We remain optimistic that Scientex will charter stronger numbers for packaging in 2024, as it has started seeing increased demand for packaging solutions over the recent months. Furthermore, the group is well placed to provide sustainable packaging solutions, which we think is likely to be the driver for its future topline. Scientex’s property segment continues to remain robust – driven by strong demand for its affordable housing offerings.

• Maintain NEUTRAL with new MYR3.75 TP as we fine-tune our RNAV valuation to incorporate Scientex’s latest property-related figures. We also make minimal adjustments to our earnings forecasts as results were in line. The group’s valuation remains fair, with the stock trading at its historical P/E mean.

• Key upside risks include unfavourable changes in demand for flexible packaging products and affordable homes, and sharp increases in raw material prices. The converse of these represent the downside risks.

Source: RHB Securities Research - 15 Jan 2024