Scientex: Best Ever Quarter, Again.

Scientex FY14Q3 Financial Result

SCIENTEX	FY14Q3	FY14Q2	FY14Q1	FY13Q4	FY13Q3
Revenue	426.8	383.5	364.8	371.2	345.1
PBT	48.1	44.4	37.8	40.2	38.2
PBT%	11.3	11.6	10.4	10.9	11.1
PAT	37.2	33.9	29.3	30.3	29.5
Manu Rev	317.2	288.5	289.2	277.4	275.3
Manu OP	16.4	15.9	17.7	20.6	16.7
Prop Rev	109.6	95.0	75.6	93.8	69.8
Prop OP	32.5	29.3	22.2	31.4	23.3
Total Equity	686.2	649.9	635.9	628.7	584.8
Total Assets	1333.2	1304.4	1263.1	1286.4	1180.9
Trade Receivables	274.8	251.7	209.7	195.5	211.1
Inventories	82.1	76.3	86	80.7	73.5
Cash	56.4	89.3	91.2	152.2	58.6
Prop Dev Cost	71.8	74.4	57.5	68.5	56.4
Total Liabilities	624.9	633.3	606.8	637.7	577.6
Trade Payables	238.9	214.2	229.4	258.4	221.3
ST Borrowings	179.1	205.8	167.9	167.6	143.8
LT Borrowings	156.2	163.7	164.3	167.8	168.4
Net Cash Flow	-95.8	-62.9	-61	115.8	22.3
Operation	89.5	30.9	13.5	209.7	131.4
Investment	-106.7	-67.0	-54.1	-345.0	-325.2
Financing	-78.6	-26.8	-20.4	251.2	216.1
EPS	16.43	15.34	13.27	13.80	13.73
NAS	3.1	2.94	2.88	2.84	2.72
D/E Ratio	0.41	0.43	0.38	0.29	0.43

For its FY14Q3, Scientex's revenue and PATAMI increase 23.7% and 26.1% respectively YoY. For 9 months of FY14, revenue at RM1.18bil is 36.9% higher compared to corresponding period of FY13, while 9-months PATAMI at RM99.6mil also increases 21.8% in the same period.

The better results are contributed by both manufacturing and property arms, in which both register better sales helped by better demand.

Cash is depleted in current quarter mainly due to capital expenditure and repayment of loans. Operation cash flow is still good though FY13 was even better. Thus, net debt to equity ratio improves slightly from 0.43 to 0.41.

Everything in Scientex still looks good for me except its profit margin in manufacturing division. Anyway, Scientex manage to achieve a stable overall PBT margin of around 11%.

Its operating margin in property segment has been good at above 30% in line with other developers. However, its manufacturing segment only registers an operating margin of 5-6% (5.6% in FY14Q3). This might be due to lower margin from industrial packaging.

Scientex's major competitor Daibochi which is mainly in consumer packaging industry achieves an operating margin of 10.3% in its latest quarter ended Mac14.

With the significant increase in the capacity of its blown film lines in consumer packaging acquired from GW Plastic, hopefully the overall margin in manufacturing can improve.

Property segment continues to perform well with unbilled sales of RM569mil at the end of FY14Q3. It still has 979 acres of development land with outstanding GDV of RM5.6 billion.

      Boosted by Scientex Senai

For simple comparison, MKH has a potential GDV of RM8 billion from 1,326 acres of land.

With better than expected result (for me) of  RM99.6mil net profit attributable to shareholders after 9 months, improved manufacturing capacity since 2014, and traditionally strong quarter in Q4, I will raise my FY14 earning forecast for Scientex to RM140mil (from RM120mil).

With total shares of 230mil, estimated EPS will be 60.9sen, and target price will be RM7.30 base on PE ratio of 12x for FY14.

Daibochi is currently trading at PE of 18.4x, while MKH is at 16x.

Nevertheless, I don't think MKH is expensive at the moment because its plantation segment will experience exponential growth starting from this year.

Scientex has announced an interim single tier dividend of 8sen for FY14 which ends in July14. Normally it will pay dividend 2 times a year. The next announcement is expected soon around October.

With a dividend payout policy of at least 30% of net profit, I expect Scientex to pay at least total 19sen dividend for its FY14.

A total of 26sen dividend was paid for FY13 including a special dividend for the first time since 2007. This represents a payout of 54%. Will Scientex pay special dividend again this year?

If it is to payout 50% as dividend, then it will be about 30sen per share. This translates into a good yield of 5.2% even at current share price of RM5.90.

Scientex's shares are rather illiquid with only 230mil of outstanding shares in the market, and the top 30 shareholders are holding 70% of them according to 2013 annual report.

With the abundance of retained profits in its equity, it is very much capable of giving bonus issues anytime.

I think Scientex has done a good job in expanding its business and enhancing shareholders' value. It was proven for the past 45 years. Hopefully it can be continued in the future.