BP Plastics Holdings Bhd’s (BPPLAS) prospects remain fairly challenging, as demand for flexible plastic packaging products which supports different sectors such as electrical and electronics, food and beverages, furniture, as well as other industrial and consumer packaging remained lackluster amid global economic slowdown despite the reopening of China’s borders and Covid-19 pandemic, said Malacca Securities in the recent Stock Digest.
They anticipate that the margin for BPPLAS to remain around 4-6% given the gradual depletion of high-cost resin inventory coupled with a gradual decline in resin prices. However, the volatility in crude oil prices recently could pose a challenge to the group’s pricing mechanism, translating to margin compression.
Also, the Imposition Cost Pass Through electricity rate hike from 3.7sen kilowatt per hour to 20sen kilowatt per hour for medium and high voltage users in Malaysia, coupled with the implementation of new Employment Act that increased the national minimum wage to RM1,500, as well as other rising operating costs in an inflationary environment are likely to impact the group’s operating costs. With the anticipated softer demand going forward, industry players may see difficulties in passing through higher costs amidst heightened competition.
BPPLAS remained committed to invest in cutting-edge technology. With the successful commissioning of the 10th Cast Stretch Film machine in end-financial year 2022, capacity has increased to 11.5 kilo metric tonne per month. The group expects to commission two units of Blown Co-extrusion machines by end-financial year 2023, which is expected to boost its production capacity to 12.2 kilo metric tonne per month.
“Nevertheless, we anticipate that the utilisation rate will remain in the range of 50.0-55.0% due to softened demand which has temporarily affected the industry,” said Malacca Securities.
After consideration, Malacca Securities have come to a conclusion to cease coverage on BP Plastics Holding Bhd due the lack of both retail and institutional interest in the stock as well as reallocation of their internal resources.
They reckon that the trading activities could remain subdued in the foreseeable future, as the absence of fresh catalysts may limit the upside potential of the share prices.
