Scientex Bhd (Dec 7, RM8.65)

Maintain hold call with an unchanged target price (TP) of RM9.38: Scientex Bhd’s first quarter financial year 2018 (1QFY18) results came in within our and consensus full-year estimates at 22% and 21% respectively. Adjusted net earnings increased by 35.5% year-on-year (y-o-y) to RM69.4 million.

The 1QFY18 operating profit for its manufacturing segment increased by 46% y-o-y to RM34.7 million in line with a revenue increase of 23.6% y-o-y to RM469.1 million. This was attributable to: i) increase in export sales by about 31%; and ii) increase in demand for a range of packaging products after a substantial completion of capacity expansion. Quarter-on-quarter (q-o-q), the operating profit increased by 83.9% due to an increase in the operating profit margin by 3.1 percentage points q-o-q to 7.4% as well as resilient revenue growth of 7.8%, which we attribute to higher demand for packaging products after capacity expansion.

The 1QFY18 operating profit for its property segment increased by 29.9% y-o-y to RM58.6 million due to increase in revenue of 22.3% y-o-y to RM189.6 million, attributable to: i) stronger progress billing from all development projects especially Taman Pulai Mutiara; and ii) good take-up rates for the Taman Pulai Mutiara and Taman Mutiara Mas projects. The operating profit declined by 12.2% q-o-q as revenue reduced by 10.1% q-o-q. We believe this is due to fewer projects launched in the current quarter (Taman Pulai Mutiara and Taman Mutiara Mas) as compared to six projects (Ipoh and Johor area) in the previous quarter.

Scientex’s polyethylene film plants are expected to reach a total capacity of 84,000 tonnes per annum by the end of 2017. Scientex is also expected to commission a new stretch film manufacturing facility in Arizona, the US by the first quarter of next year with a total capacity of 24,000 tonnes per annum. The plant will be able to support the American market due to its close proximity to customers and raw materials.

On the property end, Scientex will continue to focus on affordable housing development with upcoming projects at the Melaka Durian Tunggal (194.7 acres [78.79ha]) land and the newly-acquired land in Rawang (65.3 acres [26.43ha]) with a total estimated gross development value of close to RM1 billion. — TA Securities, Dec 7

This article first appeared in The Edge Financial Daily, on Dec 8, 2017.

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