Date: 25 September 2024
Broker: UOB Kay Hian
Company Overview
Scientex (SCI MK) is one of the largest industrial packaging companies globally and a niche property developer in Southern Malaysia. The company has a diversified business model, operating in both the manufacturing and property development sectors. As of 4QFY24, Scientex achieved record-high earnings, driven primarily by strong performance in its property division, while its packaging business also maintained resilience despite challenging market conditions.
Stock Performance
- Share Price: RM4.14
- Target Price: RM5.08
- Upside: +21.5%
- Market Cap: RM6,561.9 million (US$1,393.3 million)
- 52-week high/low: RM4.46/RM3.37
Major Shareholders
- Scientex Holdings Sdn Bhd: 21.0%
- Scientex Infinity Sdn Bhd: 10.6%
- Scientex Leasing Sdn Bhd: 9.1%
4QFY24 Financial Performance
Scientex reported a strong set of results for 4QFY24, with total turnover growing by 9.0% year-on-year and 5.4% quarter-on-quarter to RM1,168.3 million. The company’s core net profit rose to RM140.3 million, a 7.5% quarter-on-quarter and 2.5% year-on-year increase. This growth was driven by robust demand in the property segment, while the packaging division managed to sustain performance despite softer consumer sentiment.
Property Segment Drives Growth
The property division was a significant contributor to Scientex’s earnings in FY24. The segment recorded revenue of RM517.0 million in 4QFY24, a 14.6% quarter-on-quarter and 14.4% year-on-year increase. The division’s EBIT also grew to RM132.0 million, up 8.9% quarter-on-quarter and 5.9% year-on-year. Scientex launched RM1.9 billion worth of new projects in FY24, and the property segment is backed by unbilled sales of RM1.9 billion. The demand for new projects remains robust, with an overall take-up rate of 80%.
Packaging Division: Resilience Amidst Challenges
Scientex’s packaging division reported revenue of RM651.3 million for 4QFY24, a slight decline of 0.8% quarter-on-quarter but a 5.1% year-on-year increase. Despite challenges in the consumer packaging segment, the division was supported by improving demand for industrial packaging. The EBIT for the packaging division was RM45.2 million, reflecting a 22.6% quarter-on-quarter decline but a 3.8% year-on-year improvement. Scientex managed to expand its packaging margins by 0.5 percentage points in FY24 due to an improved product mix, stable resin prices, and continued cost-control measures.
Record-High Earnings in FY24
For FY24, Scientex achieved record earnings, with core net profit reaching RM548.6 million, up 18.6% year-on-year. The company’s EBITDA also grew by 20.3% year-on-year to RM736.5 million. Scientex declared an interim dividend of 6 sen in 4QFY24, bringing the full-year dividend to 12 sen, up from 10 sen in FY23, representing a payout ratio of 34%.
Property Expansion Plans
Looking ahead, Scientex plans to continue its expansion in the property sector, having acquired 842 acres of land in FY24. The company is targeting an additional 2,978 acres of land acquisitions, which are pending completion. These acquisitions, valued at around RM1.3 billion, are expected to drive growth in the property segment. Scientex’s total landbank stands at approximately 6,300 acres, providing a potential gross development value (GDV) of around RM30 billion, which is 15 times its FY24 property sales.
Manufacturing Outlook
The manufacturing division continues to face mixed prospects. While consumer packaging demand has been weaker, industrial packaging demand has improved. The current utilization rate for packaging facilities remains around 60%. Freight and resin costs have stabilized, contributing to improved margins in the near to medium term. Scientex is also focused on potential efficiency gains through automation of its production lines.
Financial Outlook
- FY24 Net Profit (Adjusted): RM545 million
- EPS (FY24): 35.2 sen
- PE (FY24): 11.8x
- Dividend Yield (FY24): 2.9%
- Net Debt to Equity (FY24): 18.0%
- ROE (FY24): 16.3%
Valuation and Recommendation
UOB Kay Hian maintains a BUY recommendation on Scientex with a target price of RM5.08, reflecting a 21.5% upside. The target price is based on a 13x FY25F PE, in line with Scientex’s 10-year mean. The company’s strong property sales, coupled with a stable packaging business, positions it well for future growth, particularly with the expansion of its landbank and development pipeline.
Environmental, Social, and Governance (ESG) Highlights
- Environmental: Scientex was the first plastic film manufacturer in Malaysia to receive the ISCC Plus Certification. The company reported an 8.2% decrease in group-wide greenhouse gas emissions in FY21.
- Social: Scientex invested RM5.3 million in community initiatives, particularly in response to the COVID-19 pandemic. Local communities comprise 78% of its workforce.
- Governance: Scientex complies with the Malaysian Code on Corporate Governance (MCCG) and has made strides in corporate governance practices.
Key Financials
- FY24 Revenue: RM4,479 million
- FY24 EBIT: RM737 million
- FY24 Core Net Profit: RM548.6 million
- EBITDA Margin (FY24): 16.5%
- Net Debt/Equity (FY24): 18.0%
Scientex continues to display strong financial performance, driven by its diversified business model in packaging and property development. The company is well-positioned for future growth, backed by its robust property pipeline and steady packaging business, with improving margins and cost controls.
