Scientex: Weathering The Storm; Maintain BUY
RHB Research has maintained ‘BUY’ rating on this counter, with new target price (TP) of MYR4.12 from MYR4.68, 19% upside and c.3% yield. Scientex reported 3QFY22 (Jul) results that fell below the street’s expectations, due to lower property sales from a deferment of Certificate of Completion & Compliance (CCC), as well as the sharp rise in raw material costs during the quarter. Despite the near-term headwinds, the research house continues to like the stock for its encouraging growth prospects, backed by the steady demand for plastic packaging and affordable housing.
Missed expectations. 3QFY22 net profit of MYR86.7m (-7.4% QoQ, -21% YoY) brought 9MFY22 core earnings to MYR283.2m (-9.9% YoY). This came below the street’s expectations, at 67% and 65% of full-year projections. EBIT margin shrank to 12.2% (15.2% in 3Q21) following the sharp rise in raw material prices in the quarter following the Russia-Ukraine war, and elevated freight costs impacting the consumer packaging products. It declared a dividend of 4 sen/share for the quarter.
Results review. 3QFY22 revenue improved by 4.4% QoQ to MYR993.8m (9MFY22 revenue +7% YoY), marking the group’s highest quarterly revenue to date. This was contributed by the packaging segment, which saw an increase in sales in its export markets as well as a rise in ASP. However, the property unit’s revenue plunged 20% YoY to MYR244.2m, mainly attributed to the deferment of CCC for projects in Johor and Melaka due to a shortage of materials for the installation of power supply infrastructure.
Outlook. Resin prices rose 9% QoQ (+16% YTD) following the surge in crude oil prices. This resulted in lower margins for the consumer packagingproducts, which faced a longer time lag in its contractual cost pass-through mechanism, compared to a shorter timeline for industrial packaging. With that said, we think margins could improve, as the raw material prices have remained largely stable in recent months while Scientex passes on the cost to customers. Sales should continue to improve, with the group’s new stretch film plant – which is expected to be commissioned in 2H22. For the property segment, there is limited guidance on the CCC deferment as this is not under Scientex’s purview, but the group will look to reviewing the prices of its products due to the rise in material costs.
The research house adjusts FY22F-24F earnings by -10 to 2% to account for the deferment of property sales. It also lowers their ascribed P/E for the manufacturing segment from 16x to 14x, to reflect the more cautious market sentiment. Valuation is still attractive – the stock is trading at -1.5SD from its historical P/E mean. Our TP incorporates a 2% ESG premium, based on our in-house methodology. Downside risks to our call are higher-than-expected costs, weaker product demand, and softer property sales.
Bermaz Auto: Robust Demand Still Fuel Orders; U/G To BUY
RHB Research has upgraded (U/G) this counter to ‘BUY’ from ‘Neutral’, with new target price (TP) MYR2 from MYR1.74, 12% upside, 5.6% yield. FY22 (Apr) results beat the Street’s expectations, mainly on stronger-than-expected margins and partially lifted by a higher CKD:CBU mix. Backlog orders remain very strong, with further upside from a potential extension of the Sales & Service Tax (SST)-holiday. The research house has upgraded its call on Bermaz Auto’s robust orders, growth in Peugeot and Kia, and attractive valuations.
FY22 earnings of MYR156m beat consensus’ estimates by 20% and 18%. As revenue was in line, the deviation came from stronger-than-expected margins – lifted by seasonally strong 4Q margins. Its fourth interim DPS of 2 sen and special DPS of 2.5 sen brought FY22 DPS to 8.75 sen, above the analyst’s 7 sen estimate.
Results review. Core earnings rose 16% YoY, mainly lifted by the strong operating profit in Malaysia – lifted by a 1.5ppts expansion in PBT margins and partially fuelled by a higher proportion of CKD sales (86% of total Mazda sales vs the 3-year mean of 73%). QoQ, its strong car sales (+44%) in Malaysia lifted local revenues by 45% while the aforesaid seasonally
stronger 4Q margins lifted EBIT by 120%. Peugeot and Kia continue to grow steadily, lifted by the Peugeot 2008, 3008, and 5008, and Kia Carnival.
Outlook. BAUTO will absorb the SST for orders placed before end June, fuelling an estimated 5-6 months of backlogs. Recall:3QFY19 partially outperformed on a similar strategy. With such a strong backlog, management is not concerned over any cancellations post the SST exemption. As CBU supply remains tight, it is expected the CKD:CBU ratio to remain at similar levels in the coming quarter or two. Although a higher CKD sales mix may marginally enhance margins, it reduces BAUTO’s ability to reap the benefits from a weakening JPY/MYR, given that Mazda CBUs are purchased in JPY.
Forecast. The research house lifts FY23F-24F core earnings by 15-7% and introduce an FY25F core profit of MYR250m with an 18% YoY growth fuelled by the continued growth of Peugeot and Kia. The elevated earnings, coupled with a higher ascribed P/E of 13x from 12x, lifts our TP to MYR2. The higher valuation accounts for BAUTO’s improving prospects and resilience against any softening demand/rising costs. The new TP includes an ESG premium of 2% for its above-median ESG score of 3.1 based on their proprietary in-house methodology. The FY23-24 DPS is raised to 10-12 sen from 9-11 sen.
BAUTO is upgraded for its: i) Resiliency against any softening of demand post the SST exemption, ii) continued growth in Kia and Peugeot from new models/facelifts and EVs, and iii) attractive valuation of 11.2x FY23 P/E, which is at an unjustified 18% discount to the 5-year mean of 13.7x given its favourable prospects. Further upside could come from a potential SST
exemption extension. Key risks include a strengthening JPY/MYR, softer-than-expected demand post SST exemption, and worse-than-expected component shortages
