Scientex property arm continues to look robust

PETALING JAYA: The brighter outlook in Scientex Bhd’s property segment is expected to sustain its earnings momentum in the near term.

TA Research said the packaging manufacturer and property developer’s revenue for the financial year 2023 (FY23) increased 2.3% year-on-year (y-o-y) given the higher take-up rate in its property division.

Nevertheless, lower demand in the group’s manufacturing segment because of global economic uncertainty and inventory adjustments among its clients partly offset this.

Scientex registered double-digit core earnings growth of 11.1% y-o-y in tandem with topline expansion.

“The group’s revenue for its fourth quarter of FY23 (4Q23) grew by 7.5% compared to the preceding quarter, largely underpinned by strong sales growth in the property segment and offset by lower contribution from the manufacturing division,” the research house said in a report yesterday.

TA Research said excluding one-off expense items, Scientex’s core net profit advanced by a larger magnitude of 19.6% quarter-on-quarter.

“Notably, the company incurred a RM22.7mil goodwill impairment loss in regard to its Myanmar operations in the quarter under review to reflect actual value of the assets, which could be due to local political tension and deteriorating economic conditions,” the research house said.

Going forward, TA Research expects there to be gradual economic improvement in mitigating the issues in the manufacturing segment, despite the cloudy outlook in the packaging industry.

However, the research house said subdued demand is expected to persist until 1Q24, due to inventory adjustments made by customers who previously overstocked to hedge against market risks.

“Notably, the FY23 segmental operating profit margin should be at 7.9%, excluding the RM22.7mil goodwill impairment loss. Conversely, Scientex may not benefit from reduced resin costs (for its packaging segment), given its primarily cost-plus and contractual order practice.

“Nonetheless, we anticipate the operating profit margin recovery through accelerated solar-facility adoption at manufacturing sites and automated production to bring down labour and utility costs,” the research house said.

On the other hand, TA Research said the stable overnight policy rate and inflationary pressure will likely ensure Scientex’s property segment remains robust.

TA Research maintained a “hold” call on Scientex with a target price of RM3.95, as it raised its FY24 and FY25 earnings forecasts by 3.2% and 5.1%, respectively, to reflect the brighter outlook for Scientex’s property segment.