Good start to FY14 for Scientex

Good start to FY14 for Scientex

Business & Markets 2013

Written by SJ Securities Research

Monday, 23 December 2013 09:56

Scientex Bhd
(Dec 20, RM5.63)
Maintain neutral at RM5.65 with a fair value of RM5.68: Scientex marked a good start in its first quarter ended Oct 31 of financial year 2014 (1QFY14) after its revenue surge 51% year-on-year (y-o-y) from RM241.6 million to RM364.8 million, helped by a 67.5% and 9.7% jump in the manufacturing and property segments respectively.

Earnings before interest, tax, depreciation and amortisation (Ebitda) saw 66.9% y-o-y leap in 1QFY14 from RM16 million to RM27 million or 35% of FY13 full-year Ebitda. The quarter’s net profit accounted for 20.3% of our FY14 full-year forecast which we deem was in line with our expectations.

In 1QFY14, the manufacturing segment recorded a topline of RM289.2 million or 79% of the group’s revenue. The manufacturing Ebitda margin remained at 9.2% despite seeing 67.5% y-o-y surge in manufacturing sales turnover, of which the stretch film division soared 54.1% y-o-y.

The decent 9.7% y-o-y improvement in the property segment’s topline was achieved by higher take-up in its high-end development in Ayer Keroh, Melaka (+25% y-o-y), continued strong demand for affordable housing in Pasir Gudang and new sales contribution from its Senai projects in Johor during the quarter. Total unbilled sales as at 1QFY14 of RM406.9 million were 32% higher than the preceding quarter’s.

As for the higher electricity tariffs starting January, we do not see any significant effect on Scientex because  the total electricity cost is approximately 3% of the group’s revenue. Scientex will increase its selling price by less than 1% through the cost pass-through mechanism. In addition, with the new higher energy efficient stretch film and consumer packaging machines, we are confident that there will not be a material impact on higher electricity cost.

With the introduction of measures to cool the property market and the prospect of interest rates rising next year, we are cautiously optimistic on the group’s property segment.

Scientex is shifting its focus to affordable housing projects in Pasir Gudang and Kulai, Johor, with the house prices ranging from RM200,000 to RM500,000. We expect higher take-up rates for these properties to mitigate the impact of property sector cooling measures. The profit before tax margin is also expected to be maintained at around the 30% level in FY14 and FY15 given the group’s low land cost of below RM10 per psf.

We maintain our FY14 targeted price-earnings ratio of 13.3 times for the manufacturing segment and 5 times for the property segment as we continue to be optimistic about the upside potential in both the industrial and consumer packaging products post-expansion.

The potential earnings downside of the property segment, in our view, will be cushioned by the robust performance of the packaging segment. We are maintaining our “neutral” stance for now while waiting for further updates on the contribution of the new stretch film lines as well as the potential impact on the earnings arising from the softer property market outlook from 2QFY14 onwards. — SJ Securities Research, Dec 19


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