Scientex: Consumer Packaging To Drive Growth

Scientex FY14Q4 Financial Result

SCIENTEX	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4
Revenue	415.4	426.8	383.5	364.8	371.2
PBT	56.0	48.1	44.4	37.8	40.2
PBT%	13.5	11.3	11.6	10.4	10.9
PATAMI	48.8	37.2	33.9	29.3	30.3
Manu Rev	297.3	317.2	288.5	289.2	277.4
Manu OP	18.8	16.4	15.9	17.7	20.6
Prop Rev	118.1	109.6	95.0	75.6	93.8
Prop OP	36.9	32.5	29.3	22.2	31.4
Total Equity	712.7	686.2	649.9	635.9	628.7
Total Assets	1400.4	1333.2	1304.4	1263.1	1286.4
Trade Receivables	243.5	274.8	251.7	209.7	195.5
Inventories	109.0	82.1	76.3	86.0	80.7
Cash	83.8	56.4	89.3	91.2	152.2
Prop Dev Cost	104.6	71.8	74.4	57.5	68.5
Total Liabilities	665.0	624.9	633.3	606.8	637.7
Trade Payables	272.1	238.9	214.2	229.4	258.4
ST Borrowings	262.9	179.1	205.8	167.9	167.6
LT Borrowings	77.5	156.2	163.7	164.3	167.8
Net Cash Flow	-68.4	-95.8	-62.9	-61.0	115.8
Operation	153.5	89.5	30.9	13.5	209.7
Investment	-149.2	-106.7	-67.0	-54.1	-345.0
Financing	-72.7	-78.6	-26.8	-20.4	251.2
EPS	22.09	16.43	15.34	13.27	13.80
NAS	3.22	3.10	2.94	2.88	2.84
D/E Ratio	0.36	0.41	0.43	0.38	0.29

Again, Scientex breaks its quarterly net profit record by posting a PATAMI of RM48.8mil (Up 31.1% QoQ) in the final quarter of FY14, even though revenue drops slightly by 2.7% QoQ.

Both manufacturing and property divisions perform equally well as shown in the table above.

Balance sheet remain healthy with slight reduction in net debt/equity ratio from 0.41 to 0.36.

Net cash flow for FY14 stays in negative territory due to high capex and generous dividend paid to shareholders amounting to RM57.5mil (FY13). Cash flow from operation remains strong.

SCIENTEX	FY14	FY13	FY12	FY11	FY10
Revenue	1590.5	1229.0	881.0	804.0	694.8
Revenue growth %	29.4	39.5	9.6	15.7
PBT	182.3	143.0	107.2	96.6	70.8
PBT%	11.5	11.6	12.2	12.0	10.2
PATAMI	148.5	110.3	83.9	77.2	60.3
PATAMI growth %	34.6	31.4	8.7	28.0
EPS	64.57	51.00	39.00	35.90	28.00
NTA	3.22	2.84	2.44	2.17	1.92
ROE	20.8	17.5	16.0	16.5	14.6
DPS	21.0	26.0	14.0	12.0	9.0

Overall for its full FY2014 ended in 31st July 2014, Scientex achieves revenue and PATAMI growth of 29.4% and 34.6% respectively compared to FY2013. Both revenue of RM1.59bil & PATAMI of 148.5mil are new high for Scientex.

This impressive result is mainly due to increased contribution from its consumer packaging division (acquisition & increased production capacity) & encouraging demand for its property in Johor especially Taman Scientex Senai which has a GDV of RM1.3bil.

Total property sales in FY14 reaches about RM470mil. Unbilled sales stays at RM537mil at the end of FY14. It still has 896 acres of development land with potential GDV of about RM4.3bil.

ROE has breached 20% mark for the first time at 20.8%

With FY14 EPS of 64.6sen (base on total shares of 230mil), my target price for Scientex will be RM7.75 (PE 12x). 

Scientex declares final dividend of 13sen for FY14, making it a total of 21sen or 3% dividend yield at share price of RM7.00. This represents a 32.5% payout from FY14's PATAMI. There is no special dividend this year so dividend this year is lower than previous year's 26sen.

Scientex will certainly need more cash in the near future for expansion in its consumer packaging business. Nevertheless, management promises to keep the dividend payout policy of at least 30%.

       Acquisition of Great Wall Plastic in 2013

Meanwhile, Scientex has entered into a share sale agreement with Japanese packaging film manufacturer Futamura Chemical, in which the latter will subscribe to 5 million new ordinary shares of Scientex Great Wall Sdn Bhd (SGW) at a price of RM40mil. 

This 5 million shares will represent 5% equity interest in SGW with the remaining 95% held by Scientex through its wholly-owned subsidiary Scientex Packaging Film Sdn Bhd.

This means that there will be no enlargement in total paid up shares of Scientex Berhad, thus no dilution of EPS.

However, 5% of earning from SGW will be allocated to Futamura as non-controlling interest.

Futamura has the option to purchase up to another 15% (total 20%) of SGW shares in the next 5 years. It can also sell back the shares to Scientex in 3 years.

SGW is formed as a subsidiary of Scientex's consumer packaging business after the recent acquisition of Great Wall Plastic & Seacera Film. Before this Scientex only involves in industrial packaging.

The equity participation of Futamura will facilitate SGW to build a new world class BOPP film manufacturing plant adhering to stringent Japanese standards and quality in Pulau Indah, Malaysia.

The total investment cost is expected to reach RM170mil which will increase Scientex BOPP film production output by 10 times from 6,000 MT to 60,000 MT per annum.

The new BOPP plant is expected to be completed by the second half of year 2016.

Besides gaining Japanese technology, Scientex will be able to grow its consumer packaging products presence in Japan, while assisting Futamura to develop and market its products in South East Asia region.

This will be a win-win situation for both parties.

       Acquisition of Seacera Film in 2014

Meanwhile, SGW will also extend its product portfolio to the manufacturing of cast polypropylene (CPP) film through an expansion plan costing approximately RM50mil. The production lines with production output of 12,000 MT per annum are expected to start operation by the second half of year 2015.

Scientex will allocate RM240mil capex over the next 2 years for expansion mentioned above. It expects the annual production capacity of its consumer packaging segment to increase to 120,000 MT in 2017, from current level of 30,000 MT.

This means that annual revenue from this segment may grow from current RM295mil to over RM1bil by FY2018! Don't forget that Scientex still has its property & industrial packaging segment.

       Scientex: Publicly listed in 1990

Along its 46 years of history, Scientex has made 3 game-changing moves. First, it diversified into plantation business in 1977 with 1,004 acres land in Pasir Gudang. After that, this plantation land has proven to be a stepping stone for its foray into property development in 1993. Scientex then further enhanced its value by expansion into consumer packaging segment since 2013. 

Judging from the history, there is no reason not to believe that Scientex might emerge as a blue chip stock in the future.