KUALA LUMPUR: Disappointing results notwithstanding, profit margins for Scientex Bhd could trend higher as raw materials prices stabilise and costs are passed on to customers, said RHB Research.
Recently, Scientex announced its 3QFY22 net profit of RM86.7mil, which brought 9MFY22 core earnings to RM283.2mil.
The results were below RHB's and consensus expectations at 67% and 65% of full-year estimates respectively.
"Despite the near-term headwinds, we continue to like the stock for its encouraging growth prospects, backed by the steady demand for plastic packaging and affordable housing," said the research firm in a stock update.
It maintained its "buy" call on Scientex but lowered its target price to RM4.12.
Elaborating on the recent results, RHB said resin prices had risen 9% quarter-on-quarter following the surge in crude oil prices, leading to lower margins for the group's consumer packaging products.
RHB said there was a longer time lag in Scientex's contractual cost pass-through mechanism compared to a shorter timeline for industrial packaging.
However, RHB said sales should continue to improve as the group's new stretch film plant is expected to be commissioned in the second half of the year.
It added that there is limited guidance on the group's deferment of the certificate of completion and compliance for its Southern region project as a result of the material shortages for power supply infrastructure.
"This is not under Scientex’s purview, but the group will look to reviewing the prices of its products due to the rise in material costs," it added.
"We adjust FY22F-24F earnings by -10 to 2% to account for the deferment of property sales.
"We also lower our ascribed price-earnings for the manufacturing segment from 16x to 14x, to reflect the more cautious market sentiment," it said.