Wednesday, January 9, 2013

Scientex's shift

In the mind of many businessmen, one thing I notice is that they must have always been continuously looking at reducing volatility i.e. balancing the unexpected. I see companies that are in plantation sector moving into properties which is quite natural, then company like Mah Sing from plastic into properties, Bonia and John Master several years ago from fashion into properties (although both failed), then IJM from construction into properties and later into plantations. Even a consumer sector company such as F&N is now a large enough developer. Tan Chong is another one coming. I would think DRB-Hicom (automotive) as well. The list goes on and on.

Whatever it is, I would think many mid-sized to the Top 100 companies in Malaysia would have thought of the word "properties" no matter which sector they are in.

And another which I am looking at Scientex - a plastic film manufacturer has gone into properties in a big way. Amazing!? In fact, it has quite a huge landbank over in the southern part of Malaysia - Johor and Melaka.

This is what I gather from its website:

Scientex's core businesses are manufacturing and property development.

Its manufacturing division comprises of two business units namely packaging and polymer.
The packaging business unit produces various packaging products designed for outer, middle and inner packaging applications:-
  • Outer packaging – stretch film, stretch hood, PP strapping band and HDPE tying tape.
  • Middle packaging – woven bags, bulk bags (FIBC) and corrugated carton boxes.
  • Inner packaging – adhesives, lamination film and PVC rigid film.
Today, Scientex is one of the world’s largest producers of stretch film, with an annual production capacity in excess of 10 billion metres. And it has just proposed to buy GW Plastics stretch film business. This will I think consolidate its position further in the business.

Sometimes in a company, by looking at the price chart, we get the story - not even 10-year financial performance as usually more patient shareholders would usually forgive an occasional worse year. The story of Scientex is of a consistent rewarding performer for its shareholders. I would imagine if a shareholder is to hold its shares from 2002 onward, I think there would not be much grumbling. By looking at the trend, I can see what the management have executed. I can see the consistency in their execution and planning and importantly results.

Look at it on the angle of its 5-years performance - consistently strong. The growth is very manageable.

On another angle.

When I look at companies such as this - usually I would like it. In fact, when I saw this company I used to like it. But being me...two things. Look at the segment contribution. Property now is a major contributor - more than its core. It was not that say 10 years ago. Hence it's growth lately has been very dependent on its property segment. Frankly I was not too crazy over its core business - plastic - as well, but it has done consistently well to attract attention. The acquisition of GW's plastic film business will balance them up a bit in terms of profit contribution though. We know that property companies have been doing well lately as in financial performance. So is Scientex. A slight difference though with Scientex is that its cost of land acquisition was pretty low as it was preparing itself with land acquisitions since 1993 if I am not mistaken. It still has a decently huge landbank today.

Now, with that will it attract me enough?

The gist of it is after looking through the company over more than 10 years, it is an attractive company. It could be even more attractive if I know where the property sector is heading. I really don't. That's why I was sitting on my decision when comes to deciding on purchasing Scientex. 

Some people who are more familiar may have taken a plunge though and those that did made the right decision...

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