Scientx- weaker outlook for next few months

Result Update

For QE31/10/2013, Scientx's net profit dropped 4% q-o-q but rose 15% y-o-y to RM29.3 million while revenue also dropped 2% q-o-q but rose 51% y-o-y to RM365 million. The y-o-y increase in top-line & bottom-line is attributable to the acquisition of GW Plastic which was completed in January 2013. The q-o-q decline in top-line & bottom-line is attributable to thefollowing:

• Manufacturing Division's revenue increased from RM277 million to RM289 million while operating profit dropped from RM21 million to RM17 million; and
• Property Development Division's revenue dropped from RM94 million to RM75 million and operating profit also similarly dropped from RM31 million to RM22 million

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Table 1: Scientx's last 8 quarterly results


Chart 1: Scientx's last 33 quarterly results 

Prospects Ahead

Scientx's Manufacturing Division may see another wave of growth after it has completed its acquisition of SEACERA Polyfilms SB, a company involved in the production of biaxially oriented polypropylene films. The cost of acquisition is RM40 million and the expected completion will be in November 2014.

In addition, Scientx's Property development Division will launch another 7 property development projects. This will bring its total projects to 14. The total GDV of these 14 projects is RM7 billion and they will last for 10 years. However, property development is currently weak after the Government's fiscal measures to curb speculation. Recovery is only expected in the middle of 2014.

Valuation

Scientx (closed at RM5.61 yesterday) is now trading at a current PE of 10.6 times (based on annualized EPS of 52.7 sen). At this PE, Scientx is deemed fairly valued.

Technical Outlook

Scientx is in an uptrend since 2009. Currently, the stock is trading sideways with resistance at RM5.60-5.70. The breakout above this resistance may only come once the property sector shows recovery and Scientx has completed its acquisition of SEACERA.


Chart 2: Scientx's weekly chart as at Dec 17, 2013 (Source: Tradesignum)

Conclusion

Based on satisfactory financial performance and reasonable valuation, Scientx remains a good stock for long-term investment. However, its neutral technical outlook reflects its weaker near-term prospect as one of its 2 business segments would be weaker for the next 2-3 quarters.  I would rate Scientx a HOLD.
 
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Scientx.