• Maintain NEUTRAL, new MYR4.35 TP from MYR3.85, 1% upside with 3% FY24F (Jul) yield. Scientex’s 3QFY24 results are broadly in line with expectations. Its double-digit YoY earnings growth was driven by a robust property segment, while its packaging arm has started to show signs of recovery. We think the stock is fairly valued – it is trading at 11.5x P/E, in line with its historical mean.

• Results review. 3QFY24 core profit rose 17% YoY (-2.9% QoQ) to MYR128.3m, bringing 9MFY24 core earnings to MYR398.6m (+23% YoY). This is broadly in line with expectations, at 69% and 72% of our and Street full-year estimates, as we expect it to chalk seasonally stronger numbers in 4QFY24. It declared a DPS of 6 sen for the quarter (3QFY23: 5 sen) which translates to a 9MFY24 core payout ratio of 17%.

• Packaging wing showed signs of recovery. 3QFY24 packaging revenue grew by 3% YoY, due to both the industrial and consumer packaging products segments, mainly from the export market. Operating profit improved by a broader 31% YoY, bringing 9MFY24 operating profit growth to 8% YoY. We believe this was mainly due to a more favourable product mix during the period, on top of better cost control. As a result, its packaging margin improved to 8.9% in 9MFY24 (9MFY23: 8.0%).

• Robust demand in the property segment. 3QFY24 revenue increased 25% YoY (-1% QoQ) amid steady billing progress and the completion of existing development projects. As a result, Scientex managed to launch MYR970m worth of properties in 9MFY24. Although this makes up only 49% of its FY23 property launches (which was valued at MYR2bn), the group is optimistic that the number will grow on the back of a pipeline of upcoming launches in both the central and southern regions of West Malaysia. Demand for affordable homes remains healthy – as reflected in the 75% take-up rate for its new launches in 9MFY24.

• Outlook. We anticipate a better YoY performance in the coming months, on the back of returning demand for consumer packaging as customers continue to replenish their inventory. On the property business, we are optimistic that Scientex is on track to achieve its property launch target of MYR2bn for FY24. As such, we continue to expect the property segment to be the main earnings contributor in the coming quarters.

• We maintain our earnings forecasts as the group’s results are in line but lower our RNAV discount to 35% (from 45%), given the greater interest in the property sphere currently. Scientex’s market valuation remains fair – the counter is trading at its historical P/E mean.

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

Source: RHB Research - 24 Jun 2024