Affin initiates coverage on Scientex with ‘buy’ call

Attractive valuation: A file picture showing Scientex MD Lim Peng Jin. Scientex is a top five global player in stretch film packaging and a leading developer of affordable homes in Peninsular Malaysia.

PETALING JAYA: Affin Hwang Capital Research has initiated coverage on packaging material maker Scientex Bhd, with a “buy” rating and a target price of RM10.10.

The research firm said Scientex’s valuation looked attractive, based on its price-to-earnings ratio of 12.7 times for the financial year of 2020 (FY20).

It also said the company’s shares could re-rate further, amid its “yet limited institutional ownership”.

“Scientex is a top five global player in stretch film packaging and a leading developer of affordable homes in Peninsular Malaysia.

“We like its impeccable earnings track record and execution, largely attributable to its solid management team.

“Riding on global demand for stretch films and a successful property strategy, we forecast an earnings per share compound annual growth rate of 10.2% for FY18-21,” said the research house in a note.

Affin Hwang Capital Research pointed out that Scientex aimed to hit RM10bil in revenue by 2028 through organic growth as well as merger and acquisition-led expansion.

The company also planned to build 50,000 units of affordable homes by 2028.

On the prospects of Scientex’s manufacturing division, the research house expected higher plant utilisation and margin relief to drive the segment’s earnings, moving forward.

“Average utilisation rates for the manufacturing division are expected to grow to 70% to 77% over FY19-21 (from 66% in FY18), as the group progressively filled up capacity for its stretch film and custom film to cater to the increased demand for flexible plastic packaging for the domestic and export markets.

“Elsewhere, we expect pressure on manufacturing margins to ease from FY20 on softer resin prices and a higher-margin mix, negated by a stronger ringgit against the US dollar,” it said.

As for the company’s property development business, Affin Hwang Capital Research pointed out that Scientex’s property launches have been saleable, thanks to its focus on the affordable housing segment.

In the nearer term, Scientex’s property prospects will be supported by unbilled sales of RM500mil as at the first quarter of FY19 and RM1bil worth of project launches coming in FY19.

The company’s total launch in FY18 was worth RM1.2bil.

“Scientex’s gross development value of RM13.5bil is expected to sustain the group over the next 10 years,” it said.

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