This article first appeared in The Edge Malaysia Weekly on August 28, 2017 - September 3, 2017

Scientex Bhd’s exponential growth is evidenced by its all-time high revenue and profit in its financial year ended July 31, 2016 (FY2016), and recognised by two The Edge Billion Ringgit Club awards this year.

Incorporated in 1968 and majority-owned by the Lim family, Scientex was originally involved in the production of polyvinyl chloride leather cloth for the automotive interior segment and sheeting for industrial and consumer products.

Under the leadership of the Lim family’s second generation, Scientex has become a leading industrial plastic packaging manufacturer and an established property developer in southern Malaysia. Managing director Lim Peng Jin, the youngest son of founder Lim Teck Meng, who began his chemical engineering career in Japan before joining the company in 1991, is currently the key figure behind Scientex.

Scientex’s revenue grew 22% year on year to RM2.2 billion in FY2016 while its net prot surged 52% to RM240.9 million. Its earnings per share (EPS) was also higher, growing from 70.43 sen in FY2015 to 105.88 sen in FY2016. The group’s EPS has effectively doubled from 51 sen in FY2013, reflecting its strong and sustained growth over the last three years.

Scientex’s record year in FY2016 was achieved on the back of phenomenal performances by both its manufacturing and property divisions.

Manufacturing revenue grew 20.5% to RM1.5 billion, fuelled by higher export sales of RM1.1 billion, representing a year-on-year growth of 22.5%. The property division, meanwhile, performed beyond expectations despite a slow property market. Its revenue rose 26.3% year on year to hit RM651.5 million.

Scientex registered a compound annual growth rate (CAGR) of 29% in its profit before tax between FY2013 and FY2016, from RM142.98 million to RM306.33 million. In fact, the company also registered a 15-year net profit CAGR of 29% between FY2001 and FY2016.

Net profit more than doubled to RM240.9 million in FY2016 from RM110.3 million in FY2013, translating into a three-year CAGR of 29.7%.

The group’s return on equity (ROE) was well above that of its peers in the past three years — 20.83% in FY2014, 16.79% in FY2015 and 20.5% in FY2016.

Its share price has more than tripled in the last three plus years, rising 239% from RM2.58 on March 31, 2014, to RM8.74 on June 30, 2017, for an annualised return of 89%.

Scientex has also paid a dividend per share of more than 20 sen in the last four financial years. It declared a total dividend of 22 sen per share or a total of RM73.6 million for FY2016. This represents a payout ratio of 30.56%, highlighting Scientex’s commitment to distribute at least 30% of its net prot to its shareholders.

The company also completed a one-for-one bonus issue on Aug 15, 2016, which resulted in an increase in its share capital to 460 million from 230 million.

In a June 21 report, Kenanga Research analyst Marie Vaz lowered Scientex’s earnings forecast by 9%-4% to RM266 million-RM333 million in FY2017-FY2018. “We may have been slightly optimistic about the newer plants’ capacity utilisation, which is lowered to 45%-65% in FY2017-FY2018 (from 55%-70%) while we also lower manufacturing margin estimates slightly as management is eyeing penetrative pricing strategy. Thus, core net margin is lowered to 9.5% (from 10%) in FY2017 while FY2018 margin is maintained at 10%,” she says.

Scientex expects the expansion of its consumer packaging plant to be completed by the end of this year and will focus on ramping up capacity going forward. Meanwhile, its industrial packaging segment is concentrating on expanding in the US with contributions accreting mostly in FY2019.

“All in, we expect total capacity to increase to 304,000 tonnes-340,000 tonnes per annum in FY2017-FY2018, and sales tonnage to ramp up by about 16%-27% y-o-y as plant utilisation increases throughout FY2017-FY2018. We believe the group will allocate about RM260 million-RM140 million for capex in FY2017-FY2018, which we have accounted for in our estimates,” Vaz says in the report.

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