Scientex Berhad

Key Points:

• Price at RM1.89 as of 15-Dec-2010 close. Undemanding PER of 7.21x only
• Paid 9 sen dividend in FY2010, representing historical dividend yield of 4.76%
• One of the world’s largest producers of stretch film
• Property division is an exposure to Iskandar theme investment with projects in Kulai and Pasir Gudang Johor
• Potential to increase to RM1.99 (by using Sum Of Parts to value Manufacturing & Property division of the business)

 1. Company Background

Established in 1965, Scientex Bhd (SCIENTX) is mainly involved in manufacturing and property development. 

A. Manufacturing 

The Company's manufacturing division comprises of two business units namely packaging and polymer. For packaging, SCIENTX produces various packaging products designed for outer, middle and inner packaging applications:-

• Outer packaging – stretch film, stretch hood, PP strapping band and HDPE tying tape.
• Middle packaging – woven bags, bulk bags (FIBC) and corrugated carton boxss.
• Inner packaging – adhesives, lamination film and PVC rigid film.

It is worth to note that SCIENTX is one of the world’s largest producers of stretch film, with an annual production capacity in excess of 10 billion metres.

For polymer, SCIENTX manufactures PVC leather cloth, PVC/PP & PVC/PE foam and TPO/PP foam sheets for automotive instrument panels, door trims, and headlining for car manufacturers. Lastly, SCIENTX also supplies tufted carpet mats to automotive manufacturer. SCIENTX clients for this division originated mainly from Asia Pacific region.

B. Property

SCIENTX flagship development is located in Pasir Gudang, Johor with land area of 1,100 acres. Over the last 15 years, more than 5,000 units of residential and commercial properties has been built. Besides, the Company also has development project in Kulai. The project in Kulai comprises of 250 acres of residential and commercial development and was launched in early 2008. This is in line with SCIENTX strategy to acquire and develop strategically located prime land within the Iskandar Malaysia growth corridor in Johor.


2. Corporate Structure

3. Management

The company's Managing Director is Mr. Lim Peng Jin who has been with the Company for 19 years. Appointed to the Board on 20 January 1995 as the Group Executive Director, he was later re-designated as Managing Director on 6 November 2001. He graduated with a Bachelor of Science (Honours) in Chemical Engineering from the University of Tokyo, Japan in 1990. He had also completed a course in Programme for Management Development at Harvard University, USA in 1998.

Other management team members are experienced in their respective fields. For Manufacturing Division (Packaging), there are 3 Executive Directors namely Mr Gan Kok Khye, Mr Choo Seng Hong and Mr Thomas Leong Choo Chye. As for Manufacturing Division (Polymer), the General Manager is Mr Goh Tian Chin. For Property Division, the Executive Director is Mr Koay Teik Chuan.

4. Financials


In FY2006 (ending 31-July), SCIENTX registered revenue of RM586.32m. This has grown to RM694.82m in FY2010. However, net income grow at Compounded Annual Growth Rate of 20.6% from RM28.47m (FY2006) to RM60.32m (FY2010).


For FY2010, revenue has increased 36.3% to RM694.82m while Profit Before Tax or PBT up 68.3% to RM70.75m. The higher PBT was attributed to higher revenue and profit margin achieved by both manufacturing and property divisions.


5. Quarter 1 for FY2011 released after market close today at 15-Dec-2010

For 1Q2011, SCIENTX net income up 33.60% y-o-y to RM17.01m. The decline q-o-q is not a major concern as 1st Quarter is normally weaker as seen in 1QFY2010 and 1QFY2009. If we annualized the 1Q net income, total net income for FY2011 should be around RM68.04m or 31.59 sen. 

6 sen dividend has just been approved in the AGM. Ex-date is 7-Jan-2011.

6. Valuation


Since SCIENTX has both manufacturing and property division, there are 3 ways to value SCIENTX.


Method 1 (treat it as packaging company): 
If we use DAIBOCHI historical PER of 8.0x to annualized FY2011 EPS of 31.59sen, SCIENTX value is RM2.53 (33.9% upside)


Method 2(treat it as property company): 
If we use KSL Price to Book Value ratio of 0.86x, SCIENTX value is RM1.73 (8.5% downside). However, the more proper way is to value this is via RNAV method.


Method 3 (Sum of Parts - break into 2 components)
This method gives value of RM1.99 per share (5.3% upside). The details is shown below:

My view:


I believe that the Sum Of Parts valuation is most appropriate. Coincidentally, RM1.99 is also the psychological barrier for the stock. Conclusion: got potential to go to RM1.99 as the short term target. Let's see how this counter goes tomorrow...