Tuesday, 12 November 2013

Scientex Strikes Again

Fresh from completing the acquisition of listed company GW Plastic for RM283mil in January this year, Scientex comes into action again by buying over Seacera Polyfilms for RM40mil.

Seacera Polyfilms, which is a major producer of biaxially-orientated polypropylene (BOPP) films in the food packaging industry, is a wholly-owned subsidiary of a listed company Seacera Group. 

This acquisition will be a further diversification to Scientex's packaging business after it first put its foot in the consumer or food packaging segment by acquiring GW Plastic. Before this, Scientex mainly produces cast stretch films for logistics and industrial sectors.

Compared to the earlier acquisition, current acquisition is small and may not contribute significantly to Scientex's earning in the near future. For the year ended Dec 2012, Seacera Polyfilms has recorded a net profit of just RM0.468mil.

       Seacera Polyfilms

Nevertheless, this is a new business for Scientex and it may expand its capacity if the demand is rising just like what it did to its blown film capacity acquired from GW Plastic.

After acquiring the blown film facility, Scientex wasted no time to invest RM50mil to install 5 new lines to expand its total capacity from 34,000 MT/yr to 51,000 MT/yr. The new lines are estimated to start production in stages from January 2014. The management has already planned for another round of expansion in the end of year 2014.

So far Scientex is the only company in my portfolio which I haven't write anything about it in this blog. I bought its share not at a cheap price (PE 11+) but I like its aggressive growth. How nice if I came to know this stock earlier while it was trading at RM2.xx in 2012.

You can get a detail summary of Scientex's growth story in its website here.

Since founded in 1968, Scientex expanded and diversified its business successfully through organic growth and acquisition. The foray into property development in 1993 has proven vital as it generates high margin earnings for Scientex to expand its manufacturing arm.

For full FY2013 ended July 2013, Scientex's revenue breaches RM1bil mark (RM1.2bil) and its net profit surges past RM100mil mark (RM110mil) for the first time in its history. Property development makes up 63% of its operating profit despite contributes only 25% of its total revenue.

More than 40% of Scientex's revenue comes from its cast stretch film production. After GW acquisition, its stretch film capacity increases from 120,000 MT/yr to 154,000 MT/yr. The management will spend RM45mil to further increase its capacity to 194,000 MT/yr by the end of calendar year 2013 due to high demand.

Thus, Scientex is currently the top 3 stretch film manufacturer in the world and the largest bread packaging manufacturer in Asia/Australia. 

       Scientex Stretch Film

Besides stretch film and blown film, Scientex also manufactures polypropylene woven bag, strapping bands, PU adhesives, carton boxes, tufted carpet mat, PVC leather cloth to name a few. It has manufacturing plants in both Malaysia and Vietnam.

       Use of PVC leather cloth in automotive sector

Property development of Scientex is mainly carried out in Johor, and some in Malacca. It has 1,025 acres of land in Iskandar region such as Pasir Gudang, Senai, Kulai, Skudai etc which carry an estimated GDV of RM4.8bil, which is more than some other pure property developers.

        Scientex Property

Though Scientex borrowed more than RM200mil to acquire GW Plastic, its net debt/equity ratio still stands at a manageable 0.29 while keeping its promise to pay at least 30% net profit as dividend.

It paid 26sen single tier dividend for its FY13 including a special dividend. This makes its payout at RM59.8mil or 54% of its net profit in FY13. The dividend yield is still 4.6% at current share price of RM5.64, which is not bad at all.

For me, Scientex has shown its ability to generate substantial operating cash flow to pay its debt. While on its newly acquired business, I think it is a good move though its immediate contribution may be low.

Currently Scientex is already a billion ringgit company. If it continues to do what it has done over the years, which are aggressive strategic expansion and acquisition, I believe it will become an even better company in the future.

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