KUALA LUMPUR: AmInvestment Bank Research has started coverage on Scientex with a Buy call and a fair value of RM10.74 based on sum-of-parts (SOP) valuation.
It said on Thursday this pegs its manufacturing segment to an FY22F P/E of 15 times, at a premium compared to its peer stretch film makers’ average forward PE of 12.5 times.
In its research note, it said the higher P/E was to reflect its higher EPS growth rates of 21.6% and 13.2% in FY21–22F (vs. a weighted average of about 10% annually for its global peers).
To recap, Scientex is an integrated flexible plastic packaging (FPP) maker which supplies to diverse sectors such as industrials and consumer-based products in the food & beverage (F&B) and fast-moving consumer goods (FMCG) sectors.
It is one of the top three producers of industrial stretch film in the world (with an estimated global market share of about 5%) and a significant player in the FPP market in Asia-Pacific (with an estimated market share of 2% in the region).
It is also a property developer focusing on affordable housing in Malaysia with an outstanding GDV of RM12.8bil.
AmInvest Research said Scientex’s earnings growth will be underpinned by its FPP manufacturing (which will in turn be driven by growth in key markets such as F&B, FMCG) and new property launches.
The key investment merits of Scientex are the bright prospects of the global FMCG packaging sector with a CAGR projected at 4.1% from 2017 to 2024 to US$623.6bil by Market Watch (an investing and financial website).
This is underpinned by: (1) global consumer spending projected at a CAGR of 4.8% in 2017–2024 according to the International Omni Retailing Markets Association (IORMA); and (2) a shift in consumer preferences to on-the-go food and beverages due to a hectic lifestyle and higher food safety standards.
“Scientex has proven its ability to grow significantly faster than the industry and shall continue to do so (i.e. at a CAGR of 20% in 2017–2024), ” it said.
AmInvest Research said the company has put in place the following: (1) extensive R&D in developing reliable, high-quality and thinner stretch film without compromising on tensile strength; (2) cost efficiency stemming from economies of scale; and (3) a merger and acquisition (M&A) pipeline, having taken over smaller peers such as GW Plastics and Daibochi Bhd in the past.
“At about 10.5 times forward earnings in its entirety, we believe this home-grown regional/global plastic packaging player is a compelling investment case given its strong foothold in a consumer-fuelled sector, ” it said.
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