This article first appeared in Capital, The Edge Malaysia Weekly on April 1, 2024 - April 7, 2024

Target price: RM4.58 BUY

UOB KAY HIAN RESEARCH (MARCH 27): Scientex’s 2QFY24 core net profit came in at RM133 million, excluding exceptional items such as foreign exchange losses and gains on disposals. Core net profit of RM268.7 million for 1HFY24 was a record high in terms of half-yearly earnings for Scientex, accounting for about 49% of our and consensus estimates respectively.

In 2QFY24, manufacturing revenue was relatively lower at RM636 million due to softening export market demand from the consumer packaging segment. That said, the overall utilisation rate has seen a quarter-on-quarter (q-o-q) improvement to 55%–60% (1QFY24: 53%). Ebit also improved to RM64 million on a much higher margin, which reflected a better product mix, easing spot resin prices and management’s cost rationalisation initiatives that boosted overall efficiency.

The property segment’s revenue came in at RM456.9 million with a higher Ebit of RM127.3 million. The higher year-on-year revenue was mainly attributed to improving sales and steady construction progress for its ongoing projects, besides overwhelming response for its new launches.

With global trade flow poised to fully recover from 2019–2022’s pandemic-induced disruptions, we expect Scientex to largely benefit from trade demand recovery, easing supply-chain pressure and capacity expansion for its plastic manufacturing segment. Meanwhile, Scientex’s property segment is also expected to deliver better progress billing and property launches as construction activities continue to ramp up.

With the successful recruitment of foreign workers alleviating Scientex’s earlier worker shortage problem, coupled with global demand recovery, we expect Scientex to further ramp up its FY22–23 average utilisation (based on increased capacity) from 50%–55% to 60%–65% in FY24. We deem that Scientex’s plastic packaging segment has exhilarating growth potential, underpinned by: a) demand recovery following global economic reopening; and b) a gradual shift of production lines to automation which potentially increases output by several folds.

In 1HFY24, Scientex continued its landbank acquisition activities with the completion of 802 acres in Kulai, Johor, and Jenjarom, Selangor. Including 1,960 acres of landbank acquisitions that are pending completion, Scientex’s total landbank of about 9,216 acres provides a potential gross development value of more than RM37 billion (over 18 times its FY23 property sales).

Maintain “buy” with a higher target price of RM4.58 (from RM4.36), implying 13 times 2024 PER.

Target price: RM3.68 BUY

PHILLIP RESEARCH (MARCH 27): UWC reported a sequentially stronger 2QFY24 core net profit of RM4 million, up from the RM1 million recorded in 1QFY24. All of the business segments reported q-o-q improvement. The front-end contribution was largely similar, accounting for 15% of semiconductor revenue. Revenue for 2QFY24 was mainly contributed by semiconductors (46%), life sciences and medicine (28%) and others, including electric vehicles (26%).

While the semiconductor segment has shown signs of recovery with improved volume loading, the recovery from both front-end and back-end customers has been slower than expected. As a result, UWC now expects earnings to be further backloaded towards 4QFY24 rather than the previously guided timeline in 3QFY24.

Post-briefing, we cut our FY24–26 earnings by 7%–23% to reflect the prolonged semiconductor recovery. However, we remain positive on UWC’s outlook on a sign of customers’ volume recovery, albeit delayed. We lower our 12-month target price to RM3.68 (from RM4.31), based on an unchanged 35-times PE multiple on lower FY25 EPS. Key risks to our “buy” call include prolonged sector recovery leading to continued order delays by customers and further margin contraction.

Target price: RM2.05 HOLD

APEX SECURITIES (MARCH 27): Kim Loong reported a net profit of RM147.7 million for FY24. The quarterly net profit fell by 32.1% quarter on quarter and 9.1% year on year (y-o-y). This weaker y-o-y performance was mainly due to a sharp decline in the average selling price (ASP) of both fresh fruit bunches (FFB) and crude palm oil (CPO).

For CY24, we anticipate the further strengthening of CPO prices, averaging at RM4,000 per million tonnes, as CPO production remains stagnant while palm oil stocks are projected to drop significantly, falling below the two million tonnes threshold.

Management indicated that Kim Loong is projected to achieve a minimum of 5% higher FFB production for FY25. In addition, the group anticipates a positive contribution to revenue and profit from the biogas plant at Telupid from FY25 onwards.

We maintain our “hold” call for Kim Loong but with a revised target price of RM2.05 (from RM1.84), based on 14.2 times PER FY25. Although we maintain a positive outlook on the group’s earnings growth potential, we believe that Kim Loong is currently priced fairly.

Target price: 43 sen BUY

MIDF RESEARCH (MARCH 27): Glomac’s 9MFY24 core net income of RM4.3 million came in slightly below consensus expectations but was deemed within our expectation despite it making up 60% of our full-year forecast, as we expect stronger earnings in 4Q. Historically, 4Q is a stronger quarter while progress billing is expected to pick up.

Glomac recorded new sales of RM142 million in 9MFY24, contributed mainly by Lakeside Residences and 121 Residences. Meanwhile, new sales momentum is expected to pick up in 4QFY24 on the back of the launches of Allamanda at Saujana KLIA and Keys at Lakeside Residences.

We maintain our earnings forecast for FY24, FY25 and FY26. We also maintain our target price for Glomac at 43 sen. We see better new sales prospects for Glomac as the launch of Loop Residence and projects in its existing township should sustain new sales growth. The balance sheet of Glomac remains sturdy with a low net gearing of 0.08 times. Besides, the valuation of Glomac is undemanding, trading at a 76% discount to its latest net tangible assets of RM1.55 per share. Hence, we maintain our “buy” call on Glomac. 

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