SCIENTEX Inc Bhd recorded revenue and net profit of RM123.4mil and RM8.6mil respectively for 4Q06. The group has proposed a second interim dividend of 5 sen and a special dividend of 10sen. 

Comment by JF Apex Securities: Net profit for 4Q06 increased 29.2% quarter-on-quarter (qoq) driven by the property division. Revenue for this division increased by 11.4% qoq to RM27.9mil, and accounted for 16% of the group’s revenue. Earnings before interest and tax (EBIT) improved by a higher pace to RM6.7mil on margin expansion. Scientex’s flagship project is Taman Scientex in Pasir Gudang, Johor. It also has a small shop-office development in Malim Business Park in Melaka. 

Although revenue from its industrial packaging division increased by 10.3% qoq to RM123.4mil, EBIT improved by merely 3%, which we believe could be due to higher raw material costs. The stretch film unit is the main earnings contributor of this division. 

The outlook for Scientex is positive. The group is expanding the capacity of its stretch film division in Pulau Indah from 60,000 tonnes to 100,000 tonnes in FY07 to cater for the increase in demand from overseas. This will be the main earnings driver of the group in FY07. For the property division, it plans to embark on more aggressive marketing strategies to increase its sales. It will also be launching more new residential properties to improve its performance. 

Recommendation: Upgrade to a buy with fair value of RM3.20, which is based on the price earnings ratio of 6.5 times for FY07.
 

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