KUALA LUMPUR: Scientex Bhd is set to benefit from demand recovery, easing of supply chain disruptions and capacity expansion for its plastic manufacturing segment amid progressive economic reopening.

       UOB Kay Hian Malaysia Research said Scientex’s property segment is also expected to deliver better progress billings and property launches, as construction activities have largely resumed.

       “We are forecasting 7.6% and 8.8% revenue growth for Scientex in 2022 and 2023 respectively,” it said in a report yesterday.

       Scientex is one of the largest industrial packaging companies in the world and a niche property developer in southern Malaysia.

       UOB Kay Hian, however cautioned that Scientex’s top line growth going forward could be choppy, as inflationary pressures, particularly from material costs, would likely result in margin compression.

       “For the manufacturing segment, we expect resin prices, which,ave surged 8% to 26% year-to-date, to remain high throughout 2022 and 2023 and negatively affect the segment’s margin, as the group usually has a time lag to pass through the cost.

       “For the property segment, a steep increase in prices of building materials such as cement and steel is also expected to exert downward pressure on the segment’s profitability margin.”

       Citing a recent survey by the Real Estate and Housing Developers Association, the research house said construction costs are expected to increase by 19% in 2022.

       “As such, we are forecasting the group’s 2022 and 2023 net margin to ease by 1.9% and 0.9% year-on-year, respectively.”

       Despite the possibility of Scientex’s manufacturing and property segments facing temporary headwinds, UOB Kay Hian said the group still has a resilient mid-to-long-term outlook.

       “This is anchored on the manufacturing segment’s capacity expansion and better sales mix of value-added products which will sustain profit margins at 8% to 10% from the previous 6% to 8%.”

       It added that earnings would also be spurred by robust contributions from maiden launches of Scientex’s landed properties in Negri Sembilan and Kedah, as well as the group’s first high rise development in the Klang Valley in the second half of 2022.The research house said Scientex’s manufacturing segment would also continue to fuel its mid-to-long-term growth.

       “We deem that Scientex’s plastic packaging segment has exhilarating growth potential, underpinned by demand recovery following global economic reopening and a gradual shift of its production lines to automation, which could increase output by several folds.

       “With its dominant position in the plastic packaging industry and strong balance sheet, we also do not rule out the possibility of Scientex acquiring more downstream manufacturers, given that the past few acquisitions have been synergistic and allows it to access new product segments and clientele.”

       It is currently maintaining its “hold” call on the company with a lower target price of RM4.39 from RM4.58, previously.