BP Plastics Holding Bhd’s (BP Plastics) 9MFY23 results met expectations and there is an uptick in orders primarily driven by the positive reception of its new premium offerings on growing demand for sustainable packaging solutions.
“These higher-margin products (such as nano stretch film) should help to mitigate cost pressures,” Kenanga Research said today (Nov 22).
The research house maintains its MARKET PERFORM call, its earnings forecasts, and TP of RM1.23 based on 9x FY24F PER, at a discount
to the sector’s average historical forward PER of 13x, largely to reflect BP Plastics relatively smaller market capitalisation and thin share liquidity, with no adjustment to our TP based on 3-rating ESG rating.
“We like the group’s strong foothold in the SE Asia market which is expected to remain resilient, strong cash flows and balance sheet and long-term capacity expansion in high-margin premium stretch film and blown film products.
“However, its short-term outlook is weighed down by the global economic slowdown,” it added.
Kenanga said the group’s 9MFY23 core net profit of RM23.7 million met expectations at 71% and 73% of our full-year forecast and the full-year consensus estimate, respectively,” it said.
The group declared DPS of 1.5 sen in 3QFY23, which is in line with our expectation, bringing cumulative YTD DPS to 4.5 sen (9MFY22: 4 sen).
Kenanga noted that year-on-year (YoY), 9MFY23 revenue declined 12% primarily due to reduced ASP in tandem with falling resin cost and softening demand for plastics packaging.
“Its core net profit dropped by a relatively smaller 5%, buoyed by improved margins arising from a better product mix with a greater proportion of higher margin products such as nano stretch film,” it said.
“We remain cautious on the market demand for packaging materials in 2HFY23 despite 2H traditionally being the peak season, due to lingering uncertainties in the global economic recovery.
“Nonetheless, we anticipate that BP Plastics is well-positioned to capitalize on the rising demand for sustainable packaging solutions. In line with its commitment to sustainability, the company continues to prioritise initiatives such as downgauging and use of recycled raw materials,” Kenanga added.
The research house said it is hopeful for increased orders for its latest premium offerings, particularly nano stretch film from both European and US markets on the heels of its participation in an international trade fair in Europe in May 2023.
The risks to Kenanga’s call include a sudden surge in resin prices, reduced demand for packaging materials due to an extended global economic slowdown, and labour shortages.
