Scientex Inc Bhd ("Scientx") is involved in the manufacture of pvc & pu leather sheeting; stretch film; pp & pe woven bags & fabrics bags; flexible intermediate bulk containers & corrugated carton boxes; trading in building materials & textile products; and property development.
Property development contributes about 69% of the group's operating profit, while manufacturing contributes the balance. Compared this to QE30/4/2010 when property development only contributed about 48% of group's operating profit. The group's property development is concentrated in Johor (in Pasir Gudang, Kulai & Skudai) and a smaller project in Malacca.
Results Update
For QE30/4/2011, Scientx's net profit increased by 6.9% q-o-q or 21.2% y-o-y to RM20.4 million while turnover incraesed by 11.5% q-o-q or 21.1% y-o-y to RM217 million. Both the manufacturing & property development divisions saw higher turnover.
Table: Scientx's last 11 quarters' result
Chart 1: Scientx's last 23 quarterly results
Financial Position
Scientx's financial position as at 30/4/2011 is deemed healthy, with current ratio at 1.5 times and debts to equity ratio at 0.13 time. Debtors' collection period is satisfactory at 52 days.
Valuation
As Scientx's bottom-line comes from manufacturing & property development of a ratio of about 3:7, we can compute a fair PE for Scientx as follows:
Group PE = Property division PE + Manufacturing division PE
= [0.7 x 7 times] + [0.3 x 10 times]
= 4.9 times + 3 times
= 7.9 times
Based on the last 4 quarters' EPS of 34.5 sen, Scientx's fair value is about RM2.73. Scientx, which closed at RM2.70, is fully valued.
Technical Outlook
Scientx made a new all-time high of RM2.94 on February 24 this year. In the process, the stock broke above the strong horizontal line of RM2.50. Its current immediate support & resistance are at RM2.70 & RM2.80, respectively. The stock looks set for an attempt at the recent high.
Chart 2: Scientx's daily chart as at June 21, 2011 (Source: Tradesignum)
Chart 3: Scientx's monthly chart as at June 21, 2011 _plotted on log scale (Source: Tradesignum)
Conclusion
Based on good financial performance & satisfactory financial position, Scientx is a good stock for long-term investment. However, it is trading very near to its fair value of RM2.73. This plus the recent high of RM2.94 could cap the upside of this stock.
9 comments:
Hi Alex
Can you comment on KSL? Its corporate proposal to issue warrant 4:1 at 20sen already approved in EGM. Based on warrant exercise price of 1.60, what is fair value for its upcoming warrant?
With is newly open KSL mall, its property investment division could surpass its property development division to be major earning contributor. This is further enhance with upcoming KSL resort (1000 room)scheduled to be completed by year end.
I think KSL could be next IGB , which will mainly derive recurring earning from property investment, which in turn could subject to re-rating for better valuation.
Hi Alex,
Can you comment on GPACKET and drbhcom?
Base on this news http://www.bloomberg.com/news/2011-06-22/baosteel-in-talks-to-buy-stake-in-amsteel-mills.html , is liondiv is a good buy or sell with the today price up ?
Hi cheer
What a coincidence?! You can read about my thought in the last post.
Hi vincent
My take on:
1) GPACKET is a high risk/high reward stock. The sector is rapidly changing, with new players & new technology. GPacket's top-line is still growing, while the bottom-line is still red. At the rate GPacket's P1 operation could breakeven by the end of this year. If that panned out, GPacket will start to book in profit next year.
Chartwise, GPacket is testing its downtrend line (which started in May 2008) with resistance at RM0.86-0.88. The stock also has an uptrend line (started in Dec 2008) with support at RM0.63-0.65.
2) Drbhcom is a profitable company, earning 24 sen per annum. At the current price of RM2.23, it is trading at a PE of 9 times. I think it is fully-valued.
Technically speaking, DRBHicom is still in an uptrend. However, I see bearish divergence, which could signal near-term weakness.
Hi hng
KSL's annualized EPS is about 14 sen. At the current price of RM1.82, KSL is trading at a PE of 13 times or P/Book of 0.8 time. IGB (closed at RM2.13) is trading at a PE of 15 times (based on annualized EPS of 14 sen) or P/Book of 1 time. IGB has a higher PE & P/Book because of its blue chip status & its portfolio of better-known properties. It will be many years before KSL can reach the same status as IGB.
Chartwise, KSL is in an uptrend line, with support at RM1.72. Immediate resistance is at RM1.85 (from the overhead short-term downtrend line).
To your question of the fair value of the proposed warrant, you can add up the intrinsic value & conversion premium. This requires some guesstimate on your part:
1) intrinsic value = [share price - exercise price]
= 1.82 - 1.60
= 22 sen
2) conversion premium = 20% of share price
= 20% x 1.82
= 36.4 sen
Warrant value = 22 + 36.4
= 58.4 sen
The proposed new warrant could have pushed up the price of the share by about 14.5 sen [58.4/4]. This process would feed on itself & boost the price higher, until a big seller steps in. I think the share price would correct downward by 15 sen or more after the ex-date. If that happens, would the warrant be so appealing?
Hi Alex,
How you calculate the debtor collection period? I have been struggled to get this figure out
Hi ericng7424
The debtor collection period is calculated as follows:
[Debtors x 365 days]/Annual Turnover
Some books would want to use the Average Debtors, which is the Debtors at the start of a period & Debtors at the end of a period. I just use Debtors at the end of a period.
Annual Turnover is the annualized turnover, based on the latest cumulative turnover. If the latest accounts is a half year account, you just take the turnover to-date & multiply by 2.
Thanks Alex for your comment on KSL. I think once its KSL resort (1000rooms) complete by year end, its will boost its properties investment division by doubling recurring earning from current 50m pa (two Giant + KSL mall cum Tesco ) to 100m pa. By then, its earning profile will be resemble to IGB: 70% recurring earning from properties investment portfolio : 30% property development.
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