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Malaysia: Higher raw material costs, logistics expenses to weigh on Scientex Packaging, says CGS-CIMB
KUALA LUMPUR (March 14): Scientex Packaging (Ayer Keroh) Bhd (formerly known as Daibochi Bhd) will wade through higher raw material costs and logistics expenses — as a result of the Russia-Ukraine conflict — on the back of its capacity expansion, according to CGS-CIMB.
In a note on Monday (March 14), CGS-CIMB analyst Kamarul Anwar said the ramped-up raw material costs and logistics expenses could be exacerbated by Scientex Packaging’s increasing reliance on exports, but added that the group’s expanded capacity will help to grow its turnover in the long run.
“And, eventually, once disruptions in the supply chain subside, its bottomline will make a recovery,” he added.
Kamarul noted that Scientex Packaging’s first half ended Jan 31, 2022 (1HFY22) core net profit of RM21.5 million made up 52% of consensus full-year forecast as well as 56% of the research house’s, as it expects earnings to soften going forward given the higher input costs.
He noted that the group had forewarned that it would incur higher operating expenses in financial year ending July 31, 2022 (FY22), owing to its investments in risk-mitigating measures at its facility as stipulated by its multinational clients and higher input costs.
“While 1HFY22 core net profit fell 22.8% year-on-year (y-o-y), Scientex Packaging’s 1HFY22 sales jumped 17.8% y-o-y, as exports’ y-o-y growth outpaced domestic sales’. Turnover from international markets climbed 25.9% y-o-y in 1HFY22 while domestic sales rose 15.3% y-o-y,” he said.
Meanwhile, he said Scientex Packaging posted another all-time high quarterly sales in the second quarter ended Jan 31, 2022 (2QFY22), which carried its quarterly revenue 7.8% higher to RM194.5 million from RM180.32 million in 1QFY22, which held the previous quarterly sales record.
“The group’s 2QFY22 EBITDA (earnings before interest, taxes, depreciation and amortisation) margin climbed further from 8.6% in 1QFY22 to 9.3%. We suspect the EBITDA margin improvement stemmed from the group finally being able to raise its selling prices.
“With the higher sales and widening margins, Scientex Packaging’s 2QFY22 core net profit rose 19.4% quarter-on-quarter,” he added.
Kamarul maintained his “add” call and target price (TP) of RM3.32 on Scientex Packaging premised on the group’s rising capacity, which he said should aid the group in expanding its topline and eventually its bottomline in coming years.
“We are of the view that the market is not valuing the stock’s potential growth, as it is trading below its historical average valuation; our TP valuation basis of calendar year 2023 (CY23) 18.6 times price-to-earnings ratio (PER) values the stock at its 10–year average PER,” he added.
The CGS-CIMB analyst noted that the downside risk of his valuation on the stock is raw material and logistics prices spiking further.
Source: https://www.theedgemarkets.com/article/higher-raw-material-costs-logistics-expenses-weigh-scientex-packaging-says-cgscimb