Scientex Bhd has been actively expanding its landbank size in the past one year or more, at a time when the property market conditions are soft and land prices are more palatable.
Based on its filings with Bursa Malaysia since March 2020, Scientex has announced land acquisitions worth over RM730mil spanning almost 2,000 acres cumulatively.
The new lands are predominantly located in secondary suburbs such as Jasin, Melaka and Pulai, Johor, in line with the group’s strategy to focus on affordable housing.
By 2028, Scientex wants to build 50,000 affordable homes.
“With an enlarged landbank, the group aims to build further on its sustainable property development model which focuses on continuously meeting the firm demand for affordably priced landed properties across the nation, ” Scientex said.
The land acquisitions announced by the property developer would further strengthen its exposure in the key states of Johor, Melaka, Selangor, Perak and Penang, moving forward.
Scientex currently has ongoing property developments worth a total gross development value (GDV) of RM2.3bil in these five states.
Recently, Scientex announced the acquisition of three parcels of lands measuring 343 acres in North Seberang Perai, Penang for RM246.7mil.
The lands lie in close proximity to Scientex’s existing Tasek Gelugor development, which was the group’s maiden Penang township launched in Oct 2020.
Scientex plans to leverage on the new land to build mixed-property development, particularly in the affordable landed properties segment to fill the pent-up demands in the Northern region.
The proposed acquisition of the three land parcels, which was announced on April 5, is expected to be completed by the first half of 2022.
Upon the completion of the land acquisition, Scientex’s total landbank is expected to expand by 6% to 6,213 acres to last for the next 10 years, with an estimated total gross development value (GDV) of RM32bil.
Analysts have viewed the latest proposed acquisition as a positive development for the group.
According to TA Securities Research analyst Jeff Lye Zhen Xiong, he is positive on Scientex’s long-term prospects to strengthen its existing presence in Penang.
He said the purchase of the North Seberang Perai lands would enable scaling for operational efficiencies, given the close proximity to Scientex’s existing Tasek Gelugor development.
“We estimate the potential GDV to be up to RM2bil, based on an average of RM5mil to RM6mil GDV per acre of land of the surrounding projects.
“We take this opportunity to bump up Scientex’s property valuation to match the valuation of a mid-sized property player.
“Consequently, we upgrade Scientex’s recommendation to “buy” from “hold” with a higher target price of RM5.05 per share, ” he said.
Meanwhile, UOB Kay Hian Malaysia Research analyst Jack Goh deems the latest acquisition to be healthy for the group.
The acquisition is also well supported by Scientex’s strong balance sheet, with “a hefty cash position of RM123mil and a healthy net gearing of 0.33 times”.
He added that the acquisition also helps Scientex to establish a stronger brand after its stellar maiden venture into Penang in 2020.
“The purchase price of the land parcels comes up to RM16.5 per square feet (psf), which is at a premium compared to the asking price of RM14 psf for its maiden acquisition of land in Tasek Gelugor in 2019 previously, but still at a discount compared with the median price of RM20 psf to RM22 psf for the landbank transacted in that area.
“Our projected GDV for these three lands is about RM1.06bil. This is based on our assumptions of about 4,400 units of houses at an average of RM222,000 each and 161 shop lots at about RM500,000 each (median selling price of nearby shop lots) based on units or land size of earlier projects.
“Based on our estimation, the land can potentially deliver a profit of over RM300mil to Scientex when fully developed, ” he said.
UOB Kay Hian Malaysia Research has maintained its “buy” call on Scientex, with a target price of RM4.43.
Goh said that he likes the stock for its strong management team and track record, which enables the group to deliver record annual results year after year.
“With Scientex’s Vision 2028 aim remaining intact, we believe the group will be able to continue its growth impetus moving forward, ” he added.
Property development contributed almost 30% of Scientex’s revenue in the first half ended Jan 31. However, the segment delivered over 52% of the group’s overall operating profit in the six-month period.
The remaining contribution came from Scientex’s plastic packaging manufacturing business.
It is noteworthy that Scientex has packaging facilities in Malaysia, Vietnam, Myanmar and the United States, with sales and marketing arms in Australia, Indonesia, Singapore, Thailand, the Philippines and Japan.
Approximately 70% of its packaging products are exported to over 60 countries worldwide.
AmInvestment Bank Research analyst Jeremie Yap points out that Scientex is well-positioned in the packaging business, considering the strong prospects of the industry owing to the consumer spending, a shift to on-the-go food and beverages due to a hectic lifestyle as well as higher food safety standards.
He also added that Scientex has an above-trend earnings growth rates of 14.8% and 12.6% for the financial years of 2021 and 2022 (FY21-22), as compared to a weighted average of about 10% annually for its global peers.
This is largely due to the group’s extensive research and development works, cost efficiency initiatives and its mergers and acquisitions pipeline.
“At about 11 times of its fully-diluted FY23 earnings in its entirety, we think that this home-grown regional or global plastic packaging player is highly compelling given its strong foothold in a consumer-fuelled sector, ” said Yap.