KUALA LUMPUR: Lingering supply chain issues and rising raw material costs have analysts less than upbeat about the near-term earnings prospects of Scientex Packaging (Ayer Keroh) Bhd, formerly known as Daibochi.
CGS-CIMB Research said it expects Scientex Packaging’s margins to be affected in the coming quarters, as raw material costs and logistics expenses may increase in the coming months due to the Russia-Ukraine war.
“The effects could be exacerbated by Scientex Packaging’s increasing reliance on exports. Nonetheless, we expect its added capacity to be filled, which will help to grow its turnover in the long run.
“Once disruptions in the supply chain subside, its bottom line will make a recovery,” it said in a report yesterday.
CGS-CIMB added that the market is not valuing the stock’s potential growth, as it is trading below its historical average valuation.
“Our target price valuation basis of calendar year 2023 and price-to-earnings ratio of 18.6-times values the stock at its 10-year price-to-earnings average.
“Downside risks include raw materials and logistics prices spiking further,” it said, adding that a re-rating catalyst is on the cards if raw material prices and logistics costs decline.Separately, MIDF Research said it remains optimistic on the overall prospects of Scientex Packaging, given the increasing demand in sustainable packaging that is predominantly driven by the food and beverage and fast-moving consumer goods sectors.
“However, as global supply chain issues are still lingering, the continued rise in plastic resin prices and freight costs remain as the key downside risks.
“Another downside risk is the prolonged political instability in Myanmar which may cause the group to face operational challenges.
“All in all, we upgrade our call from ‘neutral’ to ‘buy’ as the share price had dropped after the proposed privatisation plan by Scientex Bhd fell through.” Scientex Bhd is a major shareholder with a 71.9% stake in Scientex Packaging.
For the second quarter ended Jan 31, 2022, Scientex Packaging’s revenue rose 21% year-on-year to RM194.5mil on the back of higher demand from both domestic and export markets.
MIDF Research said exports contributed 47% to total revenue, in comparison with 44% in the previous corresponding period.
“However, operating profit was lower at RM12.2mil, mainly due to the high raw material and freight costs. Consequently, core profit after tax and minority interests (patami) dropped to RM11.9mil.” For the six-month period ended Jan 31, the research house said Scientex Packaging posted higher revenue of RM374.8mil due to stronger orders from the domestic and exports markets, as businesses fully resumed their operations.
“Similarly, exports contributed 47% to the group’s total revenue in comparison with 44% in the previous corresponding period.
“Nonetheless, operating profit dropped to RM21.8mil due to the above mentioned reasons. Sequentially, core profit after tax and minority interests declined to RM20.8mil,” said MIDF Research.