R e t a i l M a r k e t M o n i t o r 18 December 214 MONEY TALK SCIENTEX (SCI MK) 1QFY15: Within Expectations Scientex s 1QFY15 core net profit of RM35.5m was within our estimate. Both yoy and qoq top-lines saw growth due to the higher sales from both the manufacturing and property segments. However, margins have seen depression as the company lowered its selling price for consumer packaging PE blown films, as part of its strategy to capture larger market share. We are bullish on Scientex s long-term prospects as the company is in the midst of quadrupling its consumer packaging capacity, paving way for it to become a regional player in this business. Also, we like Scientex s property division which has a good mix of affordable and premium houses. Any near-term price weakness due to the weak market sentiment would be an opportunity to accumulate the share. Maintain BUY. Target price: RM8.4. 1QFY15 RESULTS Year to 31 Jul (RMm) 1QFY15 qoq % chg yoy % chg Turnover 431.1 3.8 18.2 Manufacturing 32.3 7.7 1.8 Property 11.8 (6.2) 46.5 EBITDA 52.2 (21.3) 6.4 Operating profit 41.5 (26.2) 5.6 Manufacturing 14.7 (21.8) (16.9) Property 32. (13.1) 44.6 Finance costs (1.9) (1.6) 18.9 Pre-Tax Profit 4.2 (28.3) 6.3 Tax (9.) PATAMI 3.3 (38.) 3.1 Core PATAMI 35.5 (23.1) 2.9 Margins (%) +/- ppt +/- ppt EBITDA 12.1 (3.9) (1.3) EBIT 9.6 (3.9) (1.1) PBT 9.3 (4.2) (1.) Net Profit 8.2 (2.9).2 Within expectations. Scientex posted 1QFY15 revenue of RM431m (+18.2% yoy, +3.8 qoq) and core net profit of RM35.5m (+2.9% yoy, -23.1% qoq), representing 22% and 19% of our and consensus FY15 forecasts, respectively. The results are within our expectations as we expect Scientex s new capacity for consumer packaging PE films would result in more prominent contribution in 2HFY15. KEY FINANCIALS Year to 31 Jul (RMm) 213 214 215F 216F 217F Net turnover 1,229 1,59 1,679 1,932 2,251 EBITDA 178 229 255 3 346 Operating profit 146 19 29 248 296 Net profit (rep./act.) 11 148 162 192 23 Net profit (adj.) 124 146 162 192 23 EPS (sen) 57.4 66. 73.1 86.8 14. PE 11.9 1.4 9.4 7.9 6.6 P/B 2.4 2.1 1.8 1.6 1.4 EV/EBITDA 9.4 7.6 6.7 5.6 4.4 Dividend yield (%) 3.8 3.1 3.2 3.8 4.6 Net margin (%) 1.1 9.2 9.6 9.9 1.2 Net debt/(cash) to equity (%) 29.2 36. 26.7 18.4.7 Interest cover 32.8 26.5 27. 28.3 31.8 ROE (%) 19.7 2.5 19.7 2.1 2.7 Consensus net profit - - 183 194 26 UOBKH/Consensus - -.9 1..9 Source: Scientex, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price RM6.84 Target Price RM8.4 Upside +22.8% COMPANY DESCRIPTION Scientex is one of the largest industrial packaging companies in the world and a niche property developer in Southern Malaysia. It is currently expanding its consumer packaging segment. STOCK DATA GICS sector Materials Bloomberg ticker: SCI MK Shares issued (m): 225.5 Market cap (RMm): 1542.4 Market cap (US$m): 442.8 3-mth avg t over (US$m):.7 PRICE CHART 9. 8. 7. 6. 5. 4. 2 (lcy) SCIENTEX BHD Scientex Bhd/FBMKLCI Index 1 Volume (m) (%) 16 15 14 13 12 11 1 9 8 7 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Source: Bloomberg ANALYST Malaysia Retail Research Team +63 2147 1988 research@uobkayhian.com w w w. u t r a d e. c o m. m y 1
R e t a i l M a r k e t M o n i t o r 18 December 214 EBIT would have been higher if not for unrealised forex losses. In 1QFY15, Scientex recorded RM5.2m of unrealised forex losses due to its US dollar borrowings. Scientex s 1QFY15 EBIT would be RM46.7m, excluding the unrealised losses. Manufacturing: Healthy sales growth but dampened margins due to market penetration strategy. The manufacturing segment recorded a yoy 1.8% sales growth as a result of the commissioning of new capacity for consumer packaging PE blown films. However, we understand that the yoy and qoq margin erosion was mainly due the company s strategy to lower its selling price by 6-7% for PE films to capture larger market share. We believe the current scenario could persist in 2QFY15, but don t expect further margin depression from the current level. Property: Steady growth from existing projects. For the property segment, the strong yoy growth was mainly due to the recognition of Scientex s existing development projects as well as the inaugural contribution from Taman Scientex Senai s latest development. On a yoy basis, the margin is largely sustained but the slight qoq decrease in margin is due to the less favourable product mix during the quarter. Qoq higher effective tax rate. Also, Scientex s weaker qoq bottomline is partly due to an exceptionally low effective tax rate of 11% in 4Q (1QFY15 s 22%). STOCK IMPACT Estimating CAGR of 16.4% in -17. Despite compression in some margins during the quarter, we are bullish on the company s longer term prospects. We are expecting Scientex to deliver yoy net profit growth of 9-2% in FY15-17 to RM162m, RM192m and RM23m respectively, from s RM148m. The earnings drivers are: a) the RM3m capacity expansion in consumer packaging, b) full earnings potential from industrial stretch film capacity, and c) stable 1-15% annual earnings growth from the property segment. Targeting for two-thirds of FY15 property sales to come from affordable housing projects. Due to the government s various cooling measures on the property market, Scientex near term focus would be more on affordable houses, in which demand is expected to be resilient despite slower growth of the sector. Scientex s 1QFY15 unbilled sales stood at RM631m, (vs 4Q s RM538m) which could provide earnings visibility over the next 1-2 years. In 1QFY15, Scientex had five new launches which consists of a mixture of affordable and niche residential properties. On track for consumer packaging capacity expansion. Scientex is on track to emerge as the largest blown film manufacturer in Malaysia, after the completion of its PE films capacity installation by end-14. Meanwhile, the capacity for the new product, CPP film, is expected to be installed in 1H15 and targeted for commercial run by end-15. Dividend yields of 3.2-3.8% in FY15-16. Scientex has a 3% dividend payout policy and it has consistently paid out more than 3% of earnings over the last five years. We estimate Scientex will offer decent dividend yields of 3.2% and 3.8% for FY15 and FY16 respectively. EARNINGS REVISION/RISK We make no change to our earnings forecasts. VALUATION/RECOMMENDATION Maintain BUY with unchanged target price of RM8.4, assuming 12x FY16F PE for the manufacturing segment and 8x FY16F PE for the property segment. Our target price has an implied FY16F PE of 7.9x and provides an 23% upside from current share price level. We think that any near-term price weakness due to the weak market sentiment would be an opportunity for long-term investors to accumulate the share. REVENUE TREND BY SEGMENT 2,5 5 2, 1,5 1, 5 M anufacturing (LHS) Property (LHS) OPERATING PROFIT BY SEGMENT 35 5 3 25 2 15 1 5 M anufacturing (LHS) Property (LHS) CORE NET PROFIT AND GROWTH 25 6 2 15 1 5 Core Net Profit (LHS) DIVIDEND AND YIELD TRENDS (sen) (%) 35 6 3 25 2 15 1 5 Dividend (LHS) Yield (RHS) 1 4 3 2 1 4 3 2 1 5 4 3 2 1 5 4 3 2 1 w w w. u t r a d e. c o m. m y 2
R e t a i l M a r k e t M o n i t o r 18 December 214 Bloomberg Consensus Recommendation Buy Sell Hold Valuation Ratios 7/13 7/14 7/15E 7/16E 17/12/214 1% % % P/E 1.4 8.5 8.4 7.7 Target Price 8.3 EV/EBIT 8.9 8.4 - - Upside 21.3% EV/EBITDA 7.4 6.9 6.8 5.9 P/S.9.8.8.8 Income Statement 7/13 7/14 7/15E 7/16E P/B 1.9 1.8 1.8 1.6 Revenue 1,229 1,59 1,824 2,45 Div Yield (%) 3. 1.4 3.6 3.9 Gross Income 247 - - - Operating Income 154 184 221 249 Profitability Ratios % 7/13 7/14 7/15E 7/16E Pretax Income 143 186 219 251 Gross Margin 2.1 - - - Net Income Adjusted* 11 148 18 196 EBITDA Margin 15.1 14. 14.8 15.1 EPS Adjusted.51.67.82.89 Operating Margin 12.5 11.5 12.1 12.2 Dividends Per Share.16.8.25.27 Profit Margin 9. 9.3 9.9 9.6 Payout Ratio (%) 52 12 3 3 Return on Assets 1.5 11.1 11.4 11.6 EBITDA 185 223 269 39 Return on Equity 19.1 22.1 21.7 21. Peer Comparison Ticker Price @ Market -----PE----- -----P/B----- Yield 17 Dec 14 Cap (RMm) FY13 FY13 (%) Daibochi DPP MK 4.24 481 17.5 19.7 3. 2.8 3.2 Tomypak Holdings TOMY MK 1.28 14 9.8 25.6 1.3 1.3 3.9 BP Plastics Holding BPP MK.75 137 13.2 n.a..9 n.a. n.a. SLP Resources SLPR MK.5 124 11.1 n.a. n.a. n.a. n.a. Thong Guan Industries TGI MK 1.78 187 6.7 6.4.6.6 4.8 Average 11.7 17.2 1.4 1.6 4. Scientex SCI MK 6.84 1542.4 13.4 1.2 2.4 2.1 1.2 Technical View Scientex (SCI MK) Technical BUY on breakout with +1.2% potential upside Last price: RM6.84 Target price : RM7.19, RM7.54 Support : RM6.71 Stop-loss : RM6.69 Buy on a breakout with a target price of RM7.54 and a stop-loss below RM6.69. The Bullish Harami Pattern was spotted on the chart which indicates the share price may form a reversal movement to the upside. A buy order can be placed when the share price manages to break the highest level of Bullish Harami at RM6.91. Given the diminishing trading volume, we expect the selling pressure to have gradually eased as the share price forms a new high to the upside pattern. With an improving Stochastic bullish crossover and an uptick in RSI, the share price will likely continue to make a new high towards the immediate target at RM7.19 and RM7.54. Source: Bursa Station Professional Expected Timeframe: 3 weeks to 3 months w w w. u t r a d e. c o m. m y 3
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