Analysts expect Scientex to benefit from robust property demand, but packaging segment remains soft in short term

• The packaging manufacturer and property developer’s net profit in 1QFY2024 jumped 28.6% to RM137.84 million, from RM107.18 million a year earlier, driven by its property division. Scientex reported a slight uptick in revenue to RM1.11 billion, from RM1.03 billion in 1QFY2023.

KUALA LUMPUR (Dec 15): Scientex Bhd’s results for the first quarter ended Oct 31, 2023 (1QFY2024) met the expectations of several research houses, prompting some analysts to adjust their target prices (TPs) for the stock.

The packaging manufacturer and property developer’s net profit in 1QFY2024 jumped 28.6% to RM137.84 million, from RM107.18 million a year earlier, driven by its property division. Scientex reported a slight uptick in revenue to RM1.11 billion, from RM1.03 billion in 1QFY2023.

Kenanga Research, in a note on Friday, maintained its earnings forecasts for Scientex but upgraded its call to “market perform” from “underperform” and raised its TP to RM3.75 (from RM3.23), underpinned by robust demand in the group’s affordable housing development.

“We like Scientex for its competitiveness in the global plastic packaging industry, given its size and low-cost structure and its strong foothold in the affordable housing segment in Johor,” it said.

However, the research house believes Scientex’s plastic packaging business will likely experience slower growth in the near term, on the back of a slowdown in the global economy.

Nonetheless, the robust demand for its new affordable housing launches will partially mitigate the slow packaging business with a strong take-up rate of over 80%.

“The acquisitions of land in Jenjarom, Selangor, as well as Kulai and Tebrau in Johor, are expected to be completed by mid-2024, which will sustain its project pipeline,” it noted.

Meanwhile, TA Securities Research has maintained its “hold” call and kept a marginally lower TP of RM3.89 on Scientex, following the research house’s trimmed earnings forecast.

Its FY2024, FY2025 and FY2026 earnings forecast for Scientex was lowered by 1.1%, 1.6% and 2.2% respectively.

On the manufacturing segment, TA Securities believes the headwinds could be at the tail-end, as shown by the moderate pick-up in the manufacturing division quarter-on-quarter.

“Furthermore, we gather that Scientex has identified potential in various targeted products, particularly for liquid and paste packaging. Hence, the group has expanded its capacity from 450,000 metric tonnes (MT) to 510,000 MT, to seize the new opportunity, and the new utilisation rate was 53%," it said.

It also foresees that Scientex’s property segment will remain robust, supported by the stabilised overnight policy rate (OPR) and rising demand in main city areas. The division is expected to leverage on its position as one of the key affordable housing builders.

"As of end-October 2023, the take-up rate for the new launches (with total value of RM275 million) in 1QFY2024 was 40%. We believe that the take-up rate will improve along with other new projects in the pipeline, backed by its track record. Its historical take-up rate was 80%," it added.

At 12.30pm on Friday, shares in Scientex were seven sen or 1.94% higher at RM3.67, valuing the company at RM5.69 billion.

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