Review

• Scientex Berhad (SCIENTX)’s 3QFY24 results came in within our expectation but below consensus’ full year estimates.

• In 3QFY24, core earnings increased by 12.2% YoY to RM128.0mn, mirroring a revenue growth of 11.1% YoY to RM1.1bn.

• The property segment saw a 24.7% YoY increase in sales attributed to steady construction progress across ongoing projects and strong take-up rate for new launches in Sungai Dua (Penang), Jenjarom (Selangor), and Jasin (Melaka). Additionally, EBIT grew by 15.0% YoY to RM121.2mn.

• Cumulatively, core net profit for 9MFY24 increased by 21.2% to RM396.6mn, supported by a 10.0% rise in revenue. The stronger performance was mainly driven by the commendable results from the property segment, which offset the slight decline in manufacturing top-line performance.

• A single tier interim dividend of 6.0sen/share was declared for 3QFY24 (3QFY23: 5.0sen/share).

Impact

• No change to our earnings estimates.

Outlook

• Manufacturing. The outlook for the packaging sector remains challenging due to rising energy costs and inflationary pressures, which continue to exert upward pressure on our operational costs. To remain competitive in the market, the group will work on enhancing operational efficiency while also emphasizing cost, quality, and customer delivery.

• Property. On the other hand, the outlook for the property segment remains promising. YTD, Scientex has proposed new land acquisitions totaling 2,578.4 acres (+618.4 acres in 2QFY24). We believe that the group will continue to further expand its land bank in 2HFY24, targeting a net gearing ratio of no more than 0.5x (as of 3QFY24, net gearing stood at 0.2x). Moving forward, we anticipate the EBIT margin to sustain at 28% backed by the resilient take-up rate and consistent billing progress.

Valuation

• We upgraded SCIENTX from Sell to Buy with a revised TP of RM5.41/share based on Sum-of-Parts (SOP) valuation. We have applied a new PE ratio of 14x for the property segment to align with our smallcap sector target PE. We like the stock due to its diversified business model, which offers multiple growth catalysts that ensure earnings visibility across different economic cycles.

Source: TA Research - 24 Jun 2024