Scientex reported quarter three financial year 2023 results that were broadly in line with expectations. It booked double-digit year-on-year earnings growth driven by robust demand for its affordable housing offerings that offset the decline in packaging sales, said RHB Research (RHB) in the recent Malaysia Results Review Report.
“We continue to like this stock for its attractive valuation and solid long-term prospects, backed by a steady demand for affordable homes and leading position in the plastic packaging segment,” said RHB, maintaining the Buy call.
Quarter three financial year 2023 net profit rose 26.6% year-on-year to RM109.7 million, bringing nine months financial year 2023 core earnings to RM323.1 million.
This is broadly in line with expectations at 71% and 70% of RHB and Street’s full-year estimates. Contributions from the packaging segment continues to slide sequentially amidst softer global demand and higher energy costs, but this was offset by the improving property segment.
Consequently, nine months financial year 2023 earnings before interest and tax margins improved to 14.7%. Scientex also declared a dividend of 5 sen per share.
Quarter three financial year 2023 packaging revenue declined 3% quarter-on-quarter while operating profit fell 23.8% quarter-on-quarter due to the full quarter impact of the higher electricity tariff. This led to a lower earnings before interest and tax margin of just 7%.
“While global demand for packaging products is set to stay soft in the near term, we believe this will be partially cushioned by robust sales from the consumer packaging sub-segment. At the same time, Scientex continues to innovate with new sustainably produced products that we think are likely to drive future topline growth,” said RHB.
Quarter three financial year 2022 revenue increased 11.9% quarter-on-quarter amid higher progress billings from on-going projects and robust demand from new launches. This was also aided by speedier authority approvals and processes, which had delayed revenue recognition in the past.
“We are optimistic that Scientex is on track to achieve its property launch target of RM2 billion for financial year 2023, as demand for affordable homes should remain healthy . This is reflected in the 80% take-up rate for its new launches. Hence, we continue to expect the property segment to be the main earnings driver in the near term,” said RHB.
RHB made minimal adjustments to their earnings forecast as results were in line, but lowered their environmental, social and governance premium to 0% from 4% after tweaking their environmental, social and governance weightage, given the greater emphasis on the E pillar.
Downside risks to RHB’s call are higher-than-expected costs, weaker products demand, and softer property sales.
