Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Tuesday, December 17, 2013

Scientex Berhad (SCIENTX) 森德综合 Q1FY14 Result Update

Scientex Berhad just released its latest Q1 report for calendar year 2014 this afternoon after the AGM. 

Year on year, revenue and net profit improved due to the contribution from the GW Plastic and increase sales of its stretch film. The group able to record EPS of 13.27 cents. Gross profit margin and net profit margin showed a downward trend after the the GW Plastic acquisition as its net profit margin is around 5%.  

However by compare quarter to quarter, there was a marginal drop in revenue and net profit due to lower contribution from the property segment. 

From the report, it mentioned upon the completion of the 3 cast stretch film lines, the group will continue to focus to achieve better operational efficiency. Hopefully they will able to increase the manufacturing operation profit margin to above 7.0. In addition, the installation of the blown film files are target to be operational by mid 2014. Thus, the result of these new machines will only be reflected by Q4FY14 and so on. 

Biggest setback for me for this latest quarter is the property segment which recorded a weak profit margin. The report did not provide any explanation for this, perhaps some mix houses and condo or industrial that yield lower margin. The report did point out due to recent Budget announcement on imposition of real property gains tax, increase in levy to foreign purchasers and implementing of goods and services tax, all these cooling measures might slightly affect and dampen sentiments in the overall property sector. Must take attention on this as the property segment is the bigger profit contributor to Scientex group compared to manufacturing segment.

In terms of balance sheet and cash flow, operation cash flow dropped a lot for this quarter compared with preceding year due to increase in inventories and payable. Net gearing ratio increased to 0.38 from 0.29 due to lower cash in hands. Management did point out before their comfortable region is below 0.5. Thus, it's not in alarming zone yet. 

Assume the average EPS 13.5 cents excluded any growth, total EPS for FY14 will be 54 cents. PE will be around 10.4 based on today price of RM5.61. I will continue to hold until next quarter report release barring any unforeseen circumstances. 

Oh ya, the CEO did mentioned yet again to double the market capital in 5 years time. Remember he mentioned in year 2011 to reach RM1b revenue and RM1m net profit by year 2013 and they really did it in last calendar year. Hopefully they can make it this time too, double in 5 years time will need a CAGR of around 14.4% :)

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