Update: Scientex, net profit up & up & up

Scientex Berhad just released its latest quarter report yesterday evening in this quiet month of company report announcing. Details of the revenue and net profit improvement can be seen from the table below as well as in the quarter report.

In short, Scientex recorded the best quarter in terms of revenue and net profit. Everything looks just so fine for the group after the acquisition and operation consolidation. But I expected more from it in the future given the better economic of scale and larger customer bases for its manufacturing arm. Time will tells the effects as I would like to see a better profit margin as a result of that after all the new machines start commencing.  As usual, no dividend was declared for the first half of the year. Half year EPS is 28.61 cents, probably can make at least 60 cents EPS for financial year 2014. PE is around 10 but it still highly depends on its 2 core segments.

In fact when breaking down into individual segments, although the net profit from the manufacturing arm was better compared to the same quarter preceding year, but it was considered the lowest if compared with recent four quarters. No explanation in the quarter report but based on the low operating margin recorded, either is due to the sale of low margin products or the operation costs had gone up.  Hopefully is due to the former, if the effect of tariff hike which started at Jan affected the margin so much, then it’s really a problem as this quarter covered up until Jan with one month effect only. So, the overall net profit still highly depends on its property division who contributed around 66% of the group’s operating profit this quarter.  Affordable housing developer probably able to sustain under the environment of cooling measures.

In terms of cash flow, the operating cash flow was temporarily weaken by the increase in receivables. Additional special dividends declared last year also ate a bit of its net cash. But there should be not much problem for the group as the group’s cash generate ability is quite strong for the past few years. In terms of balance sheet, the group borrowings increased to RM369 mils, which is equivalent to 0.43 net gearing ratio. It’s still below 0.5 net gearing ratio benchmark set by the management, but I think the group probably will slow down the acquisition or capex a while and consolidate its manufacturing business before going into expansion again.

The final additional operation line for its stretch film division was commissioned by the end of 2013. This line comes with the latest nano technology capable of producing 22 layers of film and makes Scientex the first producer to produce multiple layered film using nano tech in Asia. 

Else way, the new blown extrusion lines are all on schedule to be installed by mid 2014 according to the quarter report. This will help to increase the capacity by 50% to 5100MT. According to the management statement earlier, the production capacity for its extrusion lines always full house ~~ So, I think this will help to improve the overall manufacturing performance as the consumer packaging market always been doing well even during the weak economic period.

So, I think the performance for the second half of the group remains bright as I think the property division will be doing pretty well too but limited upside for the price. Dividend wise, the group normally declared 30% of the net profit as dividend and I do not think there will be another special dividend. Thus, expected at least 18 cents dividends will be declared at second half. I will consider to buy when there is a price correction. (p/s: I sold it off few weeks ago … which I quite regret about it :(. A lesson learnt)