Review

• Scientex Berhad’s 1QFY17 core profit came in at RM52.1mn or 17% of our full-year estimates and 16% of consensus forecast. We consider the results within expectation as the new BOPP plant, which is currently under trial run, is expected to start contributing from 2HFY17 onwards.

• Manufacturing: 1QFY17 revenue declined by 3.1% YoY to RM379.7mn due to weak demand for stretch films (-5.3% to 8.9mn tonnes), partially offset by increased sale of consumer packaging products (+3.9% to 6.0mn tonnes). However, 1QFY17 operating profit contracted by larger 16.1% YoY due to lower product margins. Also, we attributed this to pre-operating expenses incurred for the trial process for the new BOPP plant in Bukit Indah.

• Property: 1QFY17 revenue declined slightly by 2.2% YoY to RM155.0mn while operating profit dropped by 5.1% YoY to RM45.1mn. This was mainly due to slowdown in progress billing.

• The YoY decline in contribution from both the manufacturing and property divisions has resulted in Scientex’s 1QFY17 core earnings contracted by 14.5% to RM52.1mn. No dividend was proposed for this quarter.

Impact

• We tweak our FY17/FY18/FY19 earnings estimates slightly by +1.1%/+0.4%/-1.8% to RM314.7mn/RM361.6mn/RM386.0mn respectively after incorporating the audited FY16 earnings into our model.

Outlook

• We are positive on the prospects of the manufacturing division considering Scientex has implemented operational efficiency approach for the industrial packaging segment and is currently ramping up production capacity for the consumer packaging segment.

• Management has advised that property sales will pick up due to pent up demand for affordable housing in Johor and Melaka. To capitalize on this, the group targets to launch two housing projects within Johor (Pasir Gudang, Kulai, Senai and Skudai) and Melaka (Ayer Keroh) with estimated GDV of RM700mn in FY17.

Valuation

• FY17 earnings are expected to be back-end loaded as the new BOPP plant is expected to make its maiden contribution in 2HFY17. Target price is adjusted higher to RM8.50/share (previously RM8.47/share) based on SOP valuation. Maintain Buy on Scientex.

Source: TA Research - 16 Dec 2016