Scientex’s 1Q19 broadly within consensus
KUALA LUMPUR: Scientex Bhd’s (Scientex) earnings for the first quarter of financial year 2019 (FY19) have come in broadly within consensus estimates, meeting 15 per cent of consensus full-year earnings estimates.
In a results note, research arm of Kenanga Investment Bank Bhd (Kenanga Research) detailed that the group’s top line had come in within at 22 per cent but deviations between their estimates were due to weaker property recognitions in the quarter under review which resulted in lower-than-expected group earnings before interest and tax (EBIT) margins of 10.6 per cent, versus their expectations of 12.4 per cent.
“This is because the property segment commands stronger EBIT margins of circa 30 per cent versus the manufacturing segment of 5 to 7 per cent.
“However, we expect property recognitions to pick up in coming quarters, aided by recent launches,” explained the research arm.
The group’s topline on the other handwasupby9percentyear-overyear from increased contributions in the manufacturing segment which was up by +23 per cent and contributions from the group’s acquisitions of Klang Hock Plastic as well as the group’s operations in the US.
Looking forward, Kenanga Research is expecting property recognition to pick up in the coming quarters as they anticipate launches of RM800 to 850 million in FY19-20 while manufacturing sector utilisation rates to stay at 65 to 70 per cent in FY19-20.
As such, the research arm is maintaining their FY19-20E core net profit at RM309 to 349 million with a ‘Market Perform’ rating for the stock and a target price (TP) of RM8.50.
According to the research arm, they are maintaining their ‘Market Perform’ rating as they believe that most of the foreseeable positives have already been priced in, including the 42.4 per cent acquisition of plastics manufacturer Daibochi Bhd.
While the acquisition of Daibochi is still ongoing and expected to be completed in 2QFY19, Kenanga Research believes that the acquisition’s impact to the group’s earnings per share will be neutral due to dilution.