• Keep NEUTRAL, with a new TP of MYR3.85 from MYR3.75, 2% downside. Scientex reported 2QFY24 (Jul) results, which met our and consensus expectations. Regardless, we believe that this stock remains fairly valued, as it is trading at 10.5x, in line with its historical mean of 11x.

• In line results. 2QFY23 net profit rose 24% YoY to MYR132.1m, bringing 1HFY24 core earnings to MYR270.3m (+27% YoY). This is in line with our and consensus estimates, at 49%.

• Packaging segment’s operating profit rose 10% YoY in 2QFY24 despite a 3% YoY decline in revenue. This was mainly due to a better product mix during the period as well as improved cost control. Excluding the JV disposal gain, the packaging segment’s operating margin improved to 8.6% in 2QFY24 from 7.8% in 1QFY24 but lower than 8.9% in 2QFY23. This brought its 1HFY24 operating profit to MYR114m (-1% YoY), due to a weaker performance in 1QFY24.

• Solid performance by the property segment. 2QFY24 revenue increased 41% YoY amid steady progress billings from ongoing projects and robust demand from new launches. As a result, Scientex managed to launch MYR657m worth of properties in 1HFY24. Although this makes up only 33% of FY23 property launch of MYR2bn, the group is optimistic that it would be able to achieve higher property launch YoY on the back of upcoming launches in both the central and southern regions. Demand for affordable homes remain healthy – as reflected in the 60% take-up rate for its new launches in 1H24. As such, we continue to expect the property segment to be the main earnings driver in FY24F.

• Outlook. 2HFY24F performance is expected to be better in anticipation of returning demand for consumer packaging as customers will stock up on their inventory. On the property side, we are optimistic that Scientex is on track to achieve its property launch of MYR2bn for FY24. As such, we continue to expect the property segment to be the main earnings contributor in the coming quarters.

• Maintain NEUTRAL with new MYR3.85 TP after revising FY24F-26F earnings by 4-6% following our adjustment of the property segment’s revenue to reflect the robust performance. The group’s valuation remains fair, with the stock trading at its historical P/E mean. Our TP incorporates a 0% ESG premium, based on our in-house methodology.

• Key downside risks include unfavourable changes in demand for flexible packaging products and affordable homes, and sharp increases in raw material prices. The converse represents the upside risks.

Source: RHB Research - 27 Mar 2024