SCIENTX's 1QFY25 net profit declined 8% QoQ and 6% YoY but we deemed it within expectations. Higher property profits were offset by softer packaging contribution (which suffered adverse forex impact), and less favourable product mix (which should normalise moving ahead). Property take-up rates continue to be encouraging with more launches anticipated following recent active land acquisitions. We believe this will further cushion subdued packaging demand and margins. We maintain our forecasts, TP of RM4.15 and MARKET PERFORM call.

SCIENTX's 1QFY25 core net profit met expectations. Although it made up 22% and 21% of our full-year forecasts and consensus estimates, we expect firmer packaging earnings and more property launches in the quarters ahead. No dividend was declared in the quarter as the group typically declares dividend in the 2H of its financial year.

YoY, its 1QFY25 turnover was flattish. The higher revenue from the property segment was largely offset by lower revenue from plastic packaging due to forex impact and still soft demand which also affected other players in the plastic packaging sector. Net profit saw a 6% decline, mainly attributable to tighter packaging margins. Recent currency firmness meant lower export prices in MYR terms but higher raw material costs when the MYR was weaker.

QoQ, top line was weaker by 5%, due to the above-mentioned reasons.

Core net profit dropped by a sharper 8% given higher taxation charges compared to the preceding quarter.

Outlook. We expect earnings for its packaging segment to recover but staying soft as the forex impact normalizes, and overall demand staying muted. Nonetheless, expect some savings from a 21MWp solar photovoltaic (PV) system due to come into operations effective Jan 2025.

On a brighter note, the sales of its affordable properties will continue to be resilient given strong take-up rates from recent launches. Meanwhile, the completed land acquisition in Muar (Johor), Kuala Selangor (Selangor), Seberang Perai (Penang) with a collective GDV of RM6.6b will likely provide earnings visibility to the group in the medium term.

Forecasts. Maintained.

Valuations. We maintain our TP of RM4.15. Our TP continues to value the packaging business at an unchanged 12x FY25F PER, a premium to sector's average forward PER of 10x to reflect its size and leadership as one of the largest players in the region. There is no ESG-based adjustment to our TP given its 3-star rating as appraised by us (see Page 5).

Investment case. We like SCIENTX for its competitiveness in the global plastic packaging industry thanks to its scale advantage, low-cost structure (especially, when compared to its overseas rivals), and strong foothold in the affordable housing segment, notably in Johor. We believe that its fundamentals are adequately reflected in current valuations after recent price appreciations. Hence, we maintain our MARKET PERFORM call.

Risks to our call include: (i) a sudden spike in resin prices, (ii) weak consumer demand for packaging materials due to prolonged global economic downturn, and (iii) high inflation, elevated mortgage rates and a weak job market, hurting demand for its properties.

Source: Kenanga Research - 19 Dec 2024