Kenanga Research upgrades its call on Scientex Bhd to MARKET PERFORM from UNDERPERFORM on robust demand in affordable housing and increased valuations of its land.
The research house also we raise our SoP-TP by 16% to RM3.75 from RM3.23 to reflect a property valuation re-rating.
“This is due to a lower discount to its property RNAV of 50% from 60% as Kenanga now apply a lower discount to RNAV for affordable housing developers given the robust demand in the segment and enhancement from new land parcels in Jenjarom in Selangor, Tebrau and Kulai in Johor,” it said in its Results Note today (Dec 15).
“We maintain our valuation basis of 12x FY24F PER for its packaging business, at a premium to sector’s average forward PER of 10x to reflect its size, being one of the largest players in the region.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.”
Kenanga said Scientex’s 1QFY24 core net profit jumped 23% year-on-year (YoY) to RM137.4 million, driven by robust sales and deliveries of affordable homes, partially offset by weak packaging profits.
“It came in at 25% and 26% of our full-year forecast and the full-year consensus estimate respectively. A similar trend is likely to persist over the immediate term,” it said.
It added, YoY, the group’s 1QFY24 revenue rose 7%, mainly driven by improved performance of its property segment, up by 45% YoY.
“The higher property turnover was fuelled by strong progress billings, and a strong take-up for its new launches in Scientex Sungai Dua, Scientex Seremban and Scientex Bandar Jasin.
“This was partially offset by a 9% decline in packaging turnover due to weaker exports,” it said.
The research house anticipates softer growth in the short term for its packaging segment, dragged down largely by consumer packaging compared to industrial packaging amidst a slowing global economy.
“However, this is partially mitigated by the robust demand for its new affordable housing launches with a strong take-up rate of over 80%.
“The acquisitions of land in Jenjarom, Selangor, as well as Kulai and Tebrau, Johor, are expected to be completed by mid-2024, which will sustain its project pipeline,” it said.
The risks to its call include a sudden spike in resin prices, weak consumer demand for packaging materials due to prolonged global economic downturn, and high inflation, elevated mortgage rates and a weak job market, hurting demand for its properties.
