Kenanga IB Research starts coverage on Scientex, target price RM6.28

by **Cals** Tue 22 Oct 2013, 11:07

Business & Markets 2013

Written by theedgemalaysia.com

Tuesday, 22 October 2013 10:25

KUALA LUMPUR (Oct 22): Kenanga IB Research has started coverage on Scientex Berhad with an Outperform rating at RM5.50 and a target price of RM6.28 based on SOP valuation after assuming a 35% discount to its property RNAV and 10.2x FY14E PER on its manufacturing segment.

In a note Tuesday, the research house said that this packaging cum property play had further upside potential despite its share price almost doubling over the past year.

Kenanga Research said through Scientex’s acquisition of GW Plastic’s manufacturing segment and its on-going expansion plants, Scientex would be the world's top 3 largest stretch film manufacturer, in addition to becoming Southeast Asia's largest blown film manufacturer.

It said the growing popularity of stretch films in emerging markets is still in its infancy, potentially offering the group far greater growth.

The research house said manufacturing margins were expected to expand via greater economies of scale, merger-related efficiency and a more diversified earnings profile.

“As for its property segment, Scientex has a pipeline gross development value (GDV) of RM4.8 billion which provides up to 10 years visibility. Scientex stands to benefit from the Iskandar Malaysia story, given that 90% of the Group's remaining landbanks are concentrated within prime locations in Pasir Gudang, Kulai, Skudai and Senai.

“Most of these are geared towards the affordable housing market, which has thus far enjoyed strong take-up rates of 80-90%. We are estimating FY14-15E net profits of RM155.0 million (+40.5%) – RM182.8 million (+17.9%) and dividend yields of 4.3%-5.1%,” it said.