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StockStalk  |  JANUARY 14, 2016 11:30PM

Scientex: Breaking the record by ramping up manufacturing

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StockStalk instory imageScientex Bhd is looking to break its own records in the coming year, having started off its 2016 financial year back in July 2015 with a core nett profit that had improved 101% year-on-year. Will this be the year for Scientex, considering how the group is pushing up production numbers?

Business model: Scientex Bhd, founded in 1968 by Lim Teck Meng, functions as an investment holding company with subsidiaries in two primary segments, namely the manufacturing and selling of various packaging products, as well as property development.

Having listed on Bursa Malaysia in 1990, the group has seen recent tailwinds in the form of a record-breaking first quarter to its 2016 financial year, with the quarter in question ending in July 2015. This had exceeded the expectations of analysts, who see the group looking at a record-breaking financial year 2016.

Scientex operates nine manufacturing facilities in Malaysia and Vietnam, along with five property developments in Johor and Malacca. The group is ramping up production in 2016, with a biaxially oriented polypropylene (BOPP) plant set to come online in mid-2016, as planned, while also adding three more manufacturing lines to its existing plant in Rawang.

Shareholders and management: Scientex Holdings Sdn Bhd is the largest shareholder, with a stake of 21.52%. The holding company is followed by founder Lim Teck Meng who, through himself and two holding companies named after him, holds a total 19.52% stake in Scientex. Coming in third is Scientex Leasing Sdn Bhd with a 10.29% stake.

Serving as chairman of Scientex’ board of directors is ex-Khazanah managing director Mohd Sheriff Mohd Kassim, who took up his post in Scientex immediately following his stint at Khazanah. Lim Teck Meng also has two children in the group, Lim Peng Jin and Lim Peng Cheong, on the board of directors. Lim Peng Jin is currently managing director of Scientex, while Lim Peng Cheong is managing director of Malacca Securities Sdn Bhd.

Scientex 1-year share price performance 140116 01Share performance: Scientex’ share prices recently appreciated to its highest point on Dec 29, 2015, hitting RM9.86 at the end of the day’s trading. This appreciation, following the news of the group’s record-breaking quarter, marks a difference of RM3.29 from when the stock closed at RM6.57 on Feb 4, 2015. The share price had then trended upward over the course of 2015, averaging between RM6.75 and RM7.50 until early October, when the group broke through RM7.50.

What analysts think: Analysts believe that, with the stellar showing of the group’s first quarter, as well as the ramping up of manufacturing, the group looks on track to seeing another record year, with the group now growing the segment which was primarily responsible for the 97.8% increase in operating profit year-on-year.

“We remain bullish on the manufacturing business on the back of capacity expansion in the high-margin consumer packaging business. Furthermore, brand new cast polypropylene and BOPP film manufacturing plants are on track for commissioning and commercial operations,” said TA Securities, adding that it also expects to see encouraging sales from the group’s affordable homes in Senai, Johor, with the segment still seeing resilient demand despite the weak property market.

Analyst-calls-on-Scientex-140116It was also noted that the group will be working on reducing wastage and improving efficiencies through better planning and systematic execution, along with better cash flow management to lower financing costs.

UOB Kay Hian, after a meeting with Scientex management, also sees the group’s manufacturing segment take centre stage in 2016, noting that the group’s three-year expansion plan to transform itself into a regional consumer packaging player, as well as to become the world’s third-largest industrial stretch film manufacturer, will materialise this year.

Earnings forecast:

Scientex-earnings-forecast-140116-x

StockStalk: Whether or not Scientex actually breaks records, the group looks to be in for an exciting year ahead, considering the expansion plans that the group is undertaking to achieve its goal.

Having closed at RM10.64, down 14 sen on Jan 14, the group is still looking at a rather high price for its stock, considering the appreciation over recent days. However, this also leads Kenanga IB to believe that most positives have already been priced in, which might be a sign of limited upside moving forward.

However, with the expansion plans, Scientex may very well prove to be a stock to buy into, if only for the payout over the long term. Still, investors are advised to be cautious, as the volatility of the market, along with the recent appreciation, may have something to say about the stock.

Despite Kenanga’s “neutral” call on the plastics sector, investors who are interested in acquiring a stock from that sector may want to look at Scientex, considering the plans available moving forward, as well as Kenanga’s opinion that any revision to Budget 2016, to be tabled on Jan 28, should not impact the sector too much, if at all.

The investor is reminded that any purchase or sale on the stock market is a risk, with nothing sure or certain. Still, Scientex is worth at least a look by those who are interested, with the outlook of the group bright over the coming year.

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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.



 
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