AMBANK Research has initiated coverage on Scientex Berhad, with a buy call and a fair value of RM10.74 based on sum-of-parts (SOP) valuation.
“This pegs its manufacturing segment’s financial year ending July 31 2022 forecast to price-to-earnings ratio of fifteen times (FY22F P/E of 15x) at a premium compared to its peer stretch film makers’ average forward price-to-earnings ratio of 12.5 times, to reflect its higher earnings per share (EPS) growth rates of 21.6% and 13.2% in financial year ending July 31 2021 (FY2021) and financial year ending 2022 forecast (FY2022F),” said analyst Jeremie Yap.
Scientex is an integrated flexible plastic packaging (FPP) maker which supplies to diverse sectors such as industrials and consumer-based products in the food & beverage (F&B) and fast-moving consumer goods (FMCG) sectors.
It is also one of the top three producers of industrial stretch film in the world with an estimated global market share of about 5% and a significant player in the Asia Pacific FPP market with an estimated market share of 2% in the region.
Aside from producing industrial stretch film, the company is also involved in property development focusing on affordable housing in Malaysia with an outstanding gross development value of RM12.8 bil.
“Scientex’s earnings growth will be underpinned by its FPP manufacturing, which will in turn be driven by growth in key markets such as F&B, FMCG and new property launches,” Yap highlighted.
Citing Market Watch, he said the global FMCG packaging sector had bright prospects with a compound annual growth rate (CAGR) projected at 4.1% from 2017 to 2024 to US$623.6 bil (RM2.58 tril), underpinned by global consumer spending and a shift in consumer preferences to on-the-go food and beverages.
Accoring to Yap, Scientex had proven its ability to grow significantly faster than the industry and shall continue to do so at a CAGR of 20% in 2017–2024, having put in place extensive R&D, cost efficiency stemming from economies of scale and a merger and acquisition (M&A) pipeline.
The FPP producer, had in the past, taken over smaller peers such as GW Plastics and Daibochi Bhd.
“At about 10.5x forward earnings in its entirety, we believe this home-grown regional/global plastic packaging player is a compelling investment case given its strong foothold in a consumer-fuelled sector,” Yap noted.
As at 10.30am today, Scientex share price stood at RM9.19, with a market capital of 4.74 bil. – Sept 17, 2020