SCIENTEX BHD

Target price: KENANGA Research has lowered its financial year 2018 (FY18)-FY19 core net profit forecasts for Scientex to RM256mil to RM293mil on lower revenue recognition in FY18.

The research house also reduced its target price for the counter to RM6.90 from RM7.35.

However, it upgraded the stock to “market perform”, citing the steep 23% year-to-date (YTD) decline in its share price.

It said its target price was based on its sumof-parts FY19 valuations with an unchanged 6.8 times price-earnings ratio (PER) for the property segment, which is at a 10% discount to small-mid-cap property players due to Scientex’s exposure in the challenging Johor market, and a 15.8 times applied PER for the manufacturing segment.

“We are comfortable with our market perform call as the share price has seen a steep decline YTD while we believe that we have accounted for foreseeable earnings risks, going forward,” it said in a note.

Scientex saw its net profit for the third quarter ended April 30, slide 8.1% to RM61.1mil year-on-year (y-o-y) due to lower contribution from the group’s property division.

Revenue for the quarter was also down 5.6% at RM600.1mil.

The research house said core net profit for the nine-month period of RM201.3mil was below its estimates.

“Top-line came in below, at 65%, which we believe was due to weaker-than-expected recognition for the property segment from latest projects such as Taman Scientex Durian Tunggal, Melaka, and Scientex Meru, which are in the early stages of construction progress.

“Additionally, the segment was impacted by longer-than-expected timeframe in attaining regulatory approval and permit for some of the projects due to uncertainty during the election period,” it said.

Moving forward, it noted that Scientex was focused on ramping up its plants utilisation,