• 1QFY21 core net profit rose 5.4% yoy to RM87.1m on a better profit margin from its manufacturing segment.
• Core net profit in 1QFY21 makes up 19% of street’s and our full-year forecasts. We expect better earnings in the subsequent quarters from stronger property billings and higher production volumes.
• As such, we make no changes to our earnings forecasts and reiterate our BUY call with an unchanged 12-month TP of RM13.20.

1QFY21 core net profit grew by 5.4% yoy

Scientex’s 1QFY21 core net profit grew by 5.4% yoy to RM87.1m, mainly attributable to a higher profit margin from the manufacturing segment (+3.3 ppt yoy to RM68.6m) due to a better sales mix and product margins. This more than offset an 8.6% yoy decline in revenue to RM802.3m, mainly due to lower export sales resulting from a general slowdown in the global economy. Meanwhile, the property segment’s EBIT fell by 7.7% yoy to RM58.2m due to a decline in progress billings during the quarter.

A seasonally weak quarter

Scientex’s 1QFY21 core net profit fell by 44.3% qoq to RM87.1m mainly due to a lower contribution from the property segment, which saw a fall in revenue and EBIT by 34.4% qoq and 48.3% qoq respectively (Fig 2). This was due to lower progress billings recognised in 1QFY21 and 4QFY20 earnings that had been boosted by the completion of several development phases. Meanwhile, the manufacturing segment saw a 6.1% qoq decline in revenue, cushioned by a better profit margin resulting from the better sales mix. With 1Q being a seasonally weak quarter, we expect subsequent quarters to see some improvement in property earnings, underpinned by current unbilled sales of RM650m and target launches with a gross development value (GDV) of RM1.6bn (c.6k units across 24 property launches). Furthermore, given the positive development in Covid-19 vaccines, we expect the manufacturing segment’s sales to recover on the back of a revival in the global economy and consumer demand.

Reaffirm BUY with an unchanged TP of RM13.20

We make no changes to our earnings estimates and reiterate our BUY call with an unchanged TP of RM13.20, based on a SOTP valuation (15x FY21E PER for manufacturing; 30% discount to property RNAV). At a 14x FY21E core PER, the valuation looks attractive, supported by a 3-year core EPS CAGR of 16% in 2021-23E. Key downside risks to our call include: (i) higher-than-expected resin costs, (ii) weaker export sales and (iii) weaker-than-expected property sales.

Source: Affin Hwang Research - 18 Dec 2020