Over a year ago I did a deep dive into Scientex Berhad (KLSE: SCIENTX) (“Scientex”), and came away impressed by the group’s resilient earning prospects as both an established industrial and consumer packaging manufacturer and a leading developer of affordable homes.
At the point of writing of the above article in May 2020, the group was trading at a market capitalisation of RM4.3 billion, as share prices corrected due to the Covid-19 outbreak. Since then, share prices have rebounded over 60.0%, and the group is now valued at a market capitalisation of RM7.0 billion in September 2021.
Scientex has just reported its latest financial results for the third quarter ended 30 April 2021 (Q3FY21). We will now catch up with the group by checking on its recent business performance and major corporate developments.
1. Q3 earnings rise 57.8% to RM109.9 million
For the current financial quarter ended 30 April 2021, the group recorded revenue of RM976.8 million compared to preceding year corresponding quarter of RM772.2 million.
The group’s operating profit attributable to owners of the company stood at RM109.9 million, an increase of 57.8% compared to RM69.6 million in the preceding year corresponding quarter.
On the recent financial performance, Chief Executive Officer, Lim Peng Jin, said “Scientex remains on firm footing in the global flexible packaging market and in Malaysia’s affordable home segment; both of which fulfil the essential needs of food and beverage, lifestyle necessities and shelter.”
2. Packaging division update
Q3 Packaging revenue was RM671.5 million, an increase of 9.3% compared to RM614.4 million recorded in the preceding year corresponding quarter, on the increased sales of flexible plastic packaging to its domestic and export markets.
In tandem with the higher revenue, operating profit for the current financial quarter stood at RM64.5 million compared with preceding year corresponding quarter of RM59.3 million.
3. Property division update
Property revenue was RM305.3 million, a sharp increase of 93.5% compared to RM157.8 million recorded in the preceding year corresponding quarter.
The higher revenue was mainly contributed by strong progress billings from its on-going projects in Taman Scientex Rawang and Scientex Kundang Jaya in Selangor, Scientex Durian Tunggal in Melaka and Taman Pulai Mutiara in Johor.
In addition, the increase in revenue was also due to the five new projects launched in Scientex Tasek Gelugor, Penang, Scientex Kundang Jaya, Selangor and Scientex Durian Tunggal 2, Melaka which received overwhelming response from its purchasers.
Operating profit for the current financial quarter stood at RM84.0 million compared with preceding year quarter of RM47.2 million, in tandem with the higher revenue generated. Furthermore, the lower revenue and operating profit recorded in the preceding year corresponding quarter was mainly impacted by the Movement Control Order 1.0 (“MCO 1.0”), which saw a disruption of construction activities during the MCO 1.0 period.
4. Healthy balance sheet and cash flow
The group’s financial position remains healthy with a net gearing ratio of 30.1% as at 30 April 2021.
The group generated net cash from operating activities of RM488.5 for the nine months ended 30 April 2021. However, free cash flow was negative RM191.5 million as the group had acquired several pieces of land for property development.
Scientex has declared a single tier interim dividend of 4.0 sen per share for the financial year 2021 ending July 31, with an ex-date of July 7 and the payment date on July 23.
This above interim dividend is 20.1% higher than the single tier interim dividend of 3.33 sen per share declared for the preceding year.
6. Aggressively increasing its land bank
Scientex’s property division has an ambitious target to deliver 50,000 units of affordable homes by 2028 to benefit more than 300,000 Malaysians.
It has been aggressively increasing its land bank with the recent acquisitions:
- On 21 September 2020, the group announced that Scientex Quatari Sdn Bhd (“SQSB”), a wholly owned subsidiary, entered into a sales and purchase agreement (“SPA) with Lee Pineapple Company (Pte) Limited for the proposed acquisition of eight land parcels of 202.2 acres in Pulai, Johor Bahru for RM185.01 million. The proposed acquisition is expected to be completed in the second half of year 2021.
- On 5 April 2021, the group’s wholly-owned subsidiaries SQSB and Scientex (Skudai) Sdn Bhd have entered into two separate SPAs with Sunrich Conquest Sdn Bhd and Titanium Greenview Sdn Bhd respectively to acquired three parcels of freehold agriculture land measuring a total of 343 acres in North Seberang Perai for RM246.7 million. The proposed acquisition is expected to be completed in the first half of the calendar year 2022.
- On 7 May 2021, the group announced that SQSB, entered into a conditional SPA with Pelangi Sdn Bhd for the proposed 960-acre land acquisition in Mukim Terbrau, Johor Bahru for RM518.1 million. The proposed acquisition will be completed in stages up to the first half of year 2024, and will be financed by internally generated funds and bank borrowings.
- On 30 August 2021, Scientex announced the proposed acquisition of over 250 acres of agriculture land near Klang and Banting for RM207.6 million, from Seriemas Development Sdn Bhd, a wholly-owned subsidiary of Permodalan Nasional Bhd.
7. Scientex makes offer to take Daibochi private
Scientex has proposed to take its subsidiary Daibochi Bhd private by offering to acquire all the remaining shares and warrants it does not already own for RM345.3 million cash.
The proposed voluntary takeover exercise would entail buying 38.1% of Daibochi’s issued shares, excluding treasury shares for RM2.70 apiece, and 86.8% of its outstanding warrants for 32 sen each.
The proposed privatisation of Daibochi would provide Scientex with greater flexibility and autonomy to rationalise its business activities and to streamline the operations of both Daibochi and enlarged Scientex group, to achieve greater operational efficiencies to grow the flexible packaging business.
Scientex intends to finance the offer consideration through a combination of internally generated fund and bank borrowings.
The overall market environment remains challenging. The group will continue to strengthen and enhance its operational efficiencies, mange rising production and logistics costs, expand capacity in areas of competitive strengths with continued focus on developing innovative, sustainable and value added products with local and international brand owners.
With Bank Negara Malaysia maintaining its Overnight Policy Rate at 1.75 per cent, it is expected to provide enabling conditions for a sustainable economic recovery for the domestic economy.
Scientex remains focused on the affordable housing segment by leveraging on cost controls and efficient land use to maximise returns whilst ensuring cost competitive products continue to go on-stream.
The group will also continue to seize opportunities to acquire more competitively priced land banks at suitable locations with Peninsular Malaysia to expand its affordable housing brand names to these locations.