Review

• Scientex Berhad’s 1HFY17 adjusted net profit came in at RM116.1mn (- 11.9% YoY) after excluding exceptional items of RM0.6mn. This was at 34% of our full-year forecast and 38% of the consensus estimates. We consider the results within expectation as the second BOPP line had started the commercial run in Dec-16 and production is expected to continue ramping up from the current utilisation rate of 35%.

• Manufacturing: Revenue in 1HFY17 reduced by 0.3% to RM791.6mn on the back of weaker Asia Pacific market activity, which led to lower exports for the industrial packaging segment. Operating profit for 1HFY17 declined by 29.6% to RM54.0mn because of lower product margin from the penetrative pricing strategy. Whereas 2QFY17 experienced higher revenue by 2.5% YoY and 8.5% QoQ due to stronger exports and higher contribution from the consumer packaging segment. Operating profit for this quarter improved by 27.2% QoQ due to stronger product margin.

• Property: 1HFY17 revenue improved by 9.0% to RM329.4mn as the development projects were seeing stable sales and construction progress. This has translated to better operating profit, which increased by 16.1% YoY. 2QFY17 operating profit also increased to RM52.3mn (+16.1% QoQ, +43.8% YoY) in line with the improvement in revenue (+12.5% QoQ, +21.5% YoY). Note that unbilled sales stood at RM600.0mn as of Jan-17 to be recognized over the next two to three years.

• No dividend was proposed for this quarter.

Impact

• No change to our earnings forecast.

Outlook

• We are positive on the prospects of the manufacturing division due to i) continuing operational efficiencies, ii) industrial packaging segment is expanding presence in existing and new markets, iii) capacity expansion for consumer packaging segment and iii) continuing efforts by Scientex to ramp up sales.

• The property division is also showing signs of resiliency especially from those affordable homes projects. Note that Scientex has launched its property developments in Ipoh with potential GDV of RM745.0mn (Meru and Klebang projects)

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 maintained at RM8.50/share based on SOP valuation. Maintain Buy on Scientex

Source: TA Research - 23 Mar 2017