PETALING JAYA: Scientex Bhd will be able to maintain its gross profit margins as the group operates on a cost pass-through business model for most of its large clients.
This is a common practice in the plastics and packaging industry in both the industrial stretch film and consumer packaging sectors, said AmInvestment Bank.
“We are not too concerned about the movement of resin prices, as we do not expect fluctuations to impact the group’s profitability, ’’ it added.
It had projected Scientex’s financial year 2020 (FY20)-FY22 net profit to grow by 15%, 22% and 13%, respectively. This was based on growth in fast-moving consumer goods (FMCG). However, it did say that Scientex expects a weaker fourth quarter in FY20 as it was affected by the Covid-19 outbreak. Its property division was not allowed to operate during the movement control order (MCO).
“We expect a V-shaped recovery in subsequent quarters for the division due to pent-up demand for affordable housing in the local property sector, ’’ it said. The group’s flexible plastic packaging (FPP) manufacturing, however, continued during the MCO as it was classified under “essential services”.
Scientex’s growth prospects are supported by demand for more plastic and packaging materials and a bright outlook for both the e-commerce and the food and beverage (F&B) sectors.
Aminvestment Bank has a “buy” call on the stock with a fair value of RM10.74 per share. This pegs its manufacturing segment to a FY22 price-to-earnings ratio (PE) of 15 times. This is a premium compared to its peers’ average forward PE of 12.5 times, it added.
Scientex has two main business segments – integrated FPP manufacturing and low-cost affordable housing in the property sector. The group has completed projects with a total gross development value (GDV) of RM5bil.
It has a remaining GDV of RM12.8bil over the next 10 years. In FY21, Scientex plans to launch projects with at least RM1.1bil in GDV.
Despite the property market downturn, the group has managed to maintain an earnings before interest and taxation (Ebit) margin of higher than 30% since FY14 (except FY16 at 29%).
For FY19, the revenue split was 73% FPP and 27% property, while the Ebit split was 38% and 62%, respectively, AmInvestment said.
It also projects Scientex’s manufacturing segment to grow at a compounded annual growth rate of 16% for the period 2017-2024, about four times faster than the global FMCG packaging sector.
This is because of its extensive research and development for thinner stretch film, economies of scale, and possible future merger and acquisitions of its smaller peers to venture into new packaging segments.
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