Review

• Scientex Berhad (SCIENTX)’s 1QFY24 core net profit of RM136.5mn met ours and consensus expectation, accounting for 25.3% and 25.5% of ours and the street’s full-year forecast respectively.

• YoY: 1QFY24 revenue rose 7.4% YoY, largely driven by strong growth in the property segment (+45.3% YoY). This was partially offset by the decline in manufacturing segment (-9.2%) as a result of softer market. Consequently, its operating profit leapt 31.4% YoY to RM188.5mn, driven by a significant growth in property segment.

• QoQ: The group registered a mild revenue growth of 3.3%, thanks to improvement in the manufacturing segment, which rose 4.9% QoQ, while the rise in the property segment was negligible. The 1QFY24 EBIT jumped by 26.5% QoQ in tandem with the revenue growth, alongside margin improvement in the property segment resulted from favourable revenue mix.

Impact

• We adjust our FY24/25/26 earnings mildly lower by 1.1/1.6/2.2% for housekeeping.

Outlook

• Manufacturing. Despite the company’s cautious stance on the prospect, we believe the headwinds could be at tail-end as evidently proven by the moderate pickup in manufacturing division QoQ. To recap, the demand was dampened in previous quarters chiefly underpinned by clients’ overstocking stemming from the supply chain disruptions during the pandemic outbreak. That said, we believe the stocking issue has been dissipating and the demand will start to normalise to pre-pandemic level gradually following the easing of global economic uncertainties.

• Furthermore, we gather that SCIENTX has identified potential in various targeted products, particularly for liquid and paste packaging. Hence, the group has expanded its capacity from c,450kMT to c.510kMT to seize the new opportunity and the new utilisation rate was c.53%.

• Property. We expect the property segment to remain robust, supported by the stabilized Overnight Policy Rate (OPR) and escalating demand in main city areas, by leveraging on its position as one of the key affordable housing builders. As of end-October 2023, the take-up rate for the new launches (with total value of RM275.0mn) in 1QFY24 was c.40%. We believe that the take-up rate will improve along with other new projects in the pipeline, backed by its track record. Its historical take-up rate was c.80%.

Valuation

• We reiterate HOLD with marginally lower TP of RM3.89/share following the housekeeping on our earnings forecast.

Source: TA Research - 15 Dec 2023