TA Securities and Kenanga Research issued the sell calls as the group’s shares have run up in recent months and appear to have limited upside moving forward.
“We are positive on the proposed acquisition as it marks the establishment of the group’s thirteenth affordable township in Johor (and fourth development in Pulai) after the recent acquisition in Muar,” said TA in a note today.
It added the acquisition of 14 parcels of freehold land measuring 350.3 acres will replenish Scientex’s total landbank in Pulai, fuelling future earnings growth. The land is earmarked for a mixed-property project including affordable housing.
“However, due to the limited potential for further upside in the near term as its share price has surged 25.6% in the past six months, we maintain a ‘sell’ call on the stock,” it said, keeping its target price (TP) unchanged at RM4.30 per share.
Scientex’s shares were one sen or 0.23% lower at RM4.31 at 3.25pm, valuing the group at RM6.69 billion. Over the past one year, the shares have risen by 35%.
In a bourse filing yesterday, the group announced its wholly-owned subsidiary, Scientex Quatari Sdn Bhd, had inked an agreement with Lee Pineapple Company (Pte) Ltd for the land. The proposed acquisition is expected to be completed by the first half of 2025.
Lee Pineapple was founded in 1931 by Singaporean businessman Lee Kong Chian, who was known as the “Rubber King” and “Pineapple King”, according to the company’s website. The company’s pineapple estates are all located in Johor.
The acquired lands are adjacent to Scientex’s existing developments – Taman Pulai Mutiara, Taman Pulai Mutiara 2, and Taman Pulai Duta.
Kenanga Research remains positive on Scientex because of its “strong foothold” in the affordable housing segment in Johor, and its competitiveness in the global plastic packaging industry given its size and low-cost structure.
“However, we believe valuations have become rich after the recent run-up in its share price,” it said in its research report today.
It maintained its “underperform” rating but raised its TP by 3% to RM3.95 from RM3.85 as the latest project increases its valuation by RM203 million.
The research house said Scientex has thus far done well in Pulai, with more than 90% of its launched units sold. On the proposed land acquisition, Kenanga believes the group is getting “a fair deal”.
It said the acquisition will increase Scientex’s net debt and net gearing from RM531 million and 0.15x as at end-January 2024 to RM912 million and 0.25x, respectively, but it was “still manageable”.
Land acquisition spree
Scientex has been on a land acquisition spree to build up its property landbank since early this year.
In early January, it was dealt a blow by the Economic Planning Unit (EPU) which rejected its second attempt to buy 960 acres of prime land in Tebrau, Johor Bahru, from SP Setia Bhd for RM548 million.
The deal fell through after the group apparently failed to obtain a waiver of the Bumiputera equity condition imposed by the EPU.
Since the snub, Scientex via its subsidiaries has tied up four land acquisition deals, including the latest one in Pulai, totalling RM1.38 billion in Johor, Selangor and Penang.
In early February, its unit entered into an agreement with Singapore-based Guan Hong Plantation Pte Ltd to acquire 1,094 acres of agricultural land in Muar, Johor, for RM200 million to develop a mixed-property project.
The following month, it sealed an agreement with Metalplex Plantation Sdn Bhd for the acquisition of 826 acres of freehold land in Batang Berjuntai, Kuala Selangor, for RM335.68 million.
On May 24, the group announced it is acquiring land in Seberang Perai, Penang for RM462.5 million to expand its land bank for future development.
From plastics to property
Scientex’s property division aims to deliver 50,000 units of affordable homes by 2028. To date, it has delivered nearly 32,975 such homes priced below RM500,000 nationwide.
The group is helmed by the Lim siblings, Peng Jin, 55, and Peng Cheong, 60, the managing director cum CEO, and non-independent non-executive director, respectively.
Their father, Teck Meng, founded the company in 1968 as a manufacturer of PVC sheeting in Johor Bahru. Peng Jin took control of the family-owned company in 2014 when his father ceased to be a major shareholder.
The younger Lim has been instrumental in building Scientex into one of the top three producers of stretch film in the world. Over the years, the company ventured into plastic packaging and property development.