COMPANY UPDATE TASecurities · Senai 371 Industrial, residential & commercial 1,200 445 146 609 Pulai 326 Residential & commercial 2,500 404 0 2,096 Ipoh 80 Residential & commercial

C O M P A N Y U P D A T E

Thursday, August 10, 2017 FBMKLCI: 1,777.94

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 Sector: Industrial

Page 1 of 3

TA SecuritiesA Member of the TA Group

Scientex Berhad

TP: RM9.28 (+8.4%) Tapping into Klang Valley Property Market Last Traded: RM8.56 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* HOLD

Damia Othman Tel : +603-2167-9602 [email protected] www.taonline.com.my

Yesterday Scientex announced that the group had acquired a piece of land

measuring 65.3 acres in Rawang, Selangor for a total cash consideration of

RM85.4mn (RM30/sf). We are positive on the land purchase as it will allow

Scientex to expand its footing in central Peninsular Malaysia to further

enhance topline growth. After factoring in the private placement, we

increased our earnings slightly by 0.5% - 1.7% for FY17 – FY19. Downgrade

our call to Hold (from Buy) with downgraded target price to RM9.28/share

based on SOP valuation.

Strategically Located

The land in Rawang is a vacant freehold land strategically located approximately

2km from Rawang toll and 5km from Rawang Town Centre. It has accessibility to

major highways such as North-South Expressway, New Klang Valley Expressway,

Guthrie Corridor Expressway and LATAR Expressway. Being adjacent to Aeon

Rawang shopping mall, the land is in close proximity to well-developed

neighbourhoods with amenities like Anggun City Commercial Hub, banks, KPJ

Rawang Specialist Hospital and proposed international school. Refer to Figure 1.

Planned for Affordable Mixed Development

Scientex plans to build a mixed development township in this area. However, it

is at preliminary stage as the building plans and potential GDV have not been

finalised. According to management, the land is earmarked for affordable housing

development, comprising mainly residential and commercial properties. Note

that this new purchase would bring up total acreage of land owned by Scientex to

2,700 acres with potential GDV of RM10.0bn to be recognized in the next eight to

ten years.

Land is Fairly Valued

The purchase consideration of RM85.4mn or RM30/sf is deemed fair after

comparing with land listed on iProperty, ranging between RM30-RM38/sf.

Assuming 80% debt-financing, Scientex’s FY18 net gearing will still maintain at

0.23x level.

Forecast

We raise our FY17-19 earnings projections by 0.5-1.7% to factor in cost saving

from placement proceeds.

Recommendation

We downgrade Scientex to Hold (from Buy) with revised target price of

RM9.28/share (from RM9.69/share previously) after factoring in 20mn

placement shares into our valuation model (see Figure 3). We continue to like

Scientex for its market leader position in the plastic packaging industry.

However, the stock is fairly valued after a rally of 27.8% YTD.

Share InformationBloomberg Code SCI MK

Stock Code 4731

Listing Main Market

Share Cap (mn) 483.6

Par Value (RM) 0.5

Market Cap (RMmn) 4,139.3

52-wk Hi/Lo (RM) 8.99/6.01

12-mth Avg Daily Vol ('000 shrs) 263.9

Estimated Free Float (%) 40.2

Beta 0.4

Major Shareholders (%)

Scientex Holdings Sdn Bhd 20.8

Scientex Leasing Sdn Bhd 9.6

Lim Teck Meng Sdn Bhd 7.8

Sim Swee Tin Sdn Bhd 5.0

Forecast Revision

FY17 FY18

Forecast Revision (%) 1.2 0.5

Core Net Profit (RMmn) 255.6 308.9

Consensus 276.0 336.0

TA's / Consensus (%) 92.6 91.9

Previous Rating

Financial Indicators

FY17 FY18

Net debt/ equity (%) 23.1 31.0

ROE (%) 15.2 16.3

ROA (%) 9.8 10.0

NTA/Share (RM) 2.1 2.6

Price/NTA (x) 4.1 3.3

Share Performance (%)

Price Change SCIENTEX FBM KLCI

1 mth 0.4 1.2

3 mth 1.5 0.6

6 mth 23.0 4.6

12 mth 31.9 6.3

Buy (Downgraded)

(12-Mth) Share Price relative to the FBM KLCI

Source: Bloomberg

10-Aug-17

Page 2 of 3

TA SecuritiesA Member of the TA Group

Figure 1: Land is Adjacent to Aeon Rawang

Source: Google Maps, TA Securities

Figure 2: Status of Property Development Projects

Project Area (acres) Purpose GDV

(RMmn)

Completed

GDV

(RMmn)

On-going

Projects

(RMmn)

Future

Development

(RMmn)

Pasir Gudang 1,100 Residential &

commercial 2,200 1,319 203 678

Kulai 298 Residential &

commercial 1,000 375 144 481

Skudai: Taman Mutiara Mas 150 Residential &

commercial 2,700 718 283 1,699

Ayer Keroh & Durian Tunggal:

Taman Muzaffar Heights 334

Residential &

commercial 900 175 275 450

Senai 371 Industrial, residential

& commercial 1,200 445 146 609

Pulai 326 Residential &

commercial 2,500 404 0 2,096

Ipoh 80 Residential &

commercial 600 35 0 565

Rawang 65 TBD NA NA NA

Total 2,724 11,100 3,471 1,051 6,578

Source: Company, TA Securities

Figure 3: Valuation

Sum-of-Parts PATAMI CY18

(RMmn) Target PER (x)

Segment Value

(RMmn) Comment

Manufacturing 137.0 22 3,054.6 30% premium to peer's average PER

Property 177.3 8 1,433.2 In-line with small-cap property players

Equity value (RMmn) 4,487.8

Share cap (mn) 483.6

Target Price (RM) 9.28

10-Aug-17

Page 3 of 3

TA SecuritiesA Member of the TA Group

Earnings Summary

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.

HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return.

Not Rated: The company is not under coverage. The report is for information only.

Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting.

Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any

direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

This report has been prepared by TA SECURITIES HOLDINGS BERHAD for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and will be compensated to undertake the scheme. TA SECURITIES HOLDINGS BERHAD has produced this report independent of any influence from the CBRS or the subject

company. For more information about CBRS and other research reports, please visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/market/listed-companies/research-repository/research-reports

for TA SECURITIES HOLDINGS BERHAD(14948-M)

(A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan – Head of Research

INCOME STATEMENT BALANCE SHEET STATEMENT

FYE July 31 (RM'mn) 2015 2016 2017F 2018F 2019F FYE July 31 (RM'mn) 2015 2016 2017F 2018F 2019F

Revenue 1,801.7 2,201.0 2,530.1 2,969.1 3,218.6 PPE 642.8 952.5 1,175.3 1,469.0 1,662.9

Adj. EBIT 220.7 312.6 324.0 392.8 419.2 Investment prop. + other inv. 24.1 25.0 25.0 25.0 25.0

EI (0.6) 1.9 0.0 0.0 0.0 Land held for prop. dev. 268.6 447.0 447.0 447.0 447.0

Depreciation & amortisation (43.8) (54.5) (77.2) (91.7) (106.1) Associates & JV 41.5 48.7 48.7 48.7 48.7

Reported PBT 221.0 306.3 322.0 389.2 414.7

Adj. PBT 220.4 308.2 322.0 389.2 414.7 Total Non-Current Assets 979.1 1,489.8 1,712.6 2,006.3 2,200.2

Taxation (58.9) (59.8) (61.2) (73.9) (78.8)

Minority Interest (3.9) (5.7) (5.2) (6.3) (6.7) Prop. Dev. costs 136.5 174.7 174.7 174.7 174.7

Reported Net Profit 158.2 240.9 255.6 308.9 329.2 Inventories 112.0 137.0 140.6 171.1 183.3

Adj. Net Profit 157.6 242.7 255.6 308.9 329.2 Receivables 321.7 350.7 386.5 453.5 491.6

Adj. EPS (sen) 34.3 52.8 52.9 63.9 68.1 Cash 90.6 100.6 206.8 297.6 349.4

Net Dividend/Share (sen) 11.0 16.0 18.0 20.0 22.0 Total Current Assets 660.8 763.0 908.5 1,097.0 1,199.0

Dividend Yield (%) 1.3 1.9 1.9 2.2 2.4

Total Assets 1,639.9 2,252.8 2,621.1 3,103.3 3,399.2

CASH FLOW STATEMENT

FYE July 31 (RM'mn) 2015 2016 2017F 2018F 2019F Share Capital 115.0 115.0 376.0 376.0 376.0

Profit before tax 221.0 306.3 322.0 389.2 414.7 Reserves 827.0 1,060.2 1,228.7 1,440.9 1,663.7

Depreciation & amortisation 43.8 54.5 77.2 91.7 106.1 Shareholders' funds 942.0 1,175.2 1,604.7 1,816.9 2,039.7

Interest expense 8.3 17.4 10.7 14.6 18.0 MI 62.8 66.5 71.7 78.0 84.7

Interest income (4.2) (7.4) (7.7) (10.0) (12.4) Total Equity 1,004.8 1,241.7 1,676.4 1,894.9 2,124.4

Others 0.5 4.5 0.0 0.0 0.0

Cash flow before WC 269.3 375.3 402.3 485.4 526.5 Loans & Borrowings 75.5 238.9 123.9 293.9 293.9

Changes in WC; Others 59.5 60.7 60.7 60.7 60.7

Inventories (2.6) (7.0) (3.6) (30.6) (12.1) Total Non-Current Liabilities 135.0 299.5 184.5 354.5 354.5

Receivables (45.8) (34.8) (35.8) (67.0) (38.1)

Payable 56.4 84.2 18.6 63.6 36.4 Loans & Borrowings 149.9 232.7 262.7 292.7 322.7

Others (40.1) 28.0 0.0 0.0 0.0 Trade and other payables 308.3 431.2 449.8 513.4 549.8

Total working capital (32.1) 70.4 (20.8) (34.0) (13.8) Others 42.0 47.6 47.6 47.6 47.6

Income tax paid (45.4) (65.0) (61.2) (73.9) (78.8) Total Current Liabilities 500.1 711.6 760.2 853.8 920.2

Others 237.1 445.4 381.5 451.4 512.7

Operating Cash Flow 191.8 380.4 320.3 377.5 433.9 Total Equity and Liabilities 1,639.9 2,252.8 2,621.1 3,103.3 3,399.2

Capex (100.0) (281.4) (300.0) (300.0) (300.0) RATIOS

Others 60.9 (279.2) 7.7 (75.4) 12.4 FYE July 31 (RM'mn) 2015 2016 2017F 2018F 2019F

Investing Cash Flow (39.1) (560.7) (292.3) (375.4) (287.6) Profitability ratios

Gross Margin (%) 19.9 20.0 20.0 17.0 18.0

Net change in debts (120.7) 217.6 (85.0) 200.0 30.0 Core EBITDA Margin (%) 14.7 16.7 15.9 16.3 16.3

Dividends paid (47.1) (49.8) (87.0) (96.7) (106.4) Core EBIT Margin (%) 12.3 14.2 12.8 13.2 13.0

Finance costs paid (8.3) (17.4) (10.7) (14.6) (18.0) PBT Margin (%) 12.3 13.9 12.7 13.1 12.9

Others 30.2 39.7 261.0 0.0 0.0 ROA (%) 9.6 10.8 9.8 10.0 9.7

Financing Cash Flow (145.8) 190.2 78.2 88.7 (94.4) ROE (%) 15.7 19.5 15.2 16.3 15.5

Net Gearing (x) 0.14 0.32 0.11 0.16 0.13

Net change 6.9 10.0 106.2 90.8 51.8 PER (x) 24.9 16.3 9.8 13.4 12.6

Beginning cash 83.8 90.6 100.6 206.8 297.6 NTA/share (x) 1.3 1.5 2.1 2.6 3.5

Ending cash 90.6 100.6 206.8 297.6 349.4 P/NTA (RM) RM 6.4 5.6 4.1 3.3 2.5