The long-term outlook for the plastics sector is positive. However, plastics’ versatility makes it difficult to be replaced and more recycling is needed, which is the the main issue to be addressed by the Malaysia’s Plastic Neutrality Masterplan 2024, reported Kenanga Investment Bank Bhd (Kenanga Research).
The demand for plastics remains healthy across Malaysia in 2024 with exporters reporting 10% improvement year-on-year, whereas for 2025, the demand outlook to continue improving gradually with the introduction of circular plastic economy and new recycling technology, according to the Malaysian Plastics Manufacturers Association (MPMA) voicing through the 2024 International Plastic Conference.
There is a pressing need to steadily adopt recycling technology such as chemical recycling, and to gradually impose extended producer responsibility (EPR) schemes to incentivise sustainable practices.
This transition, while costly and complex, is expected to reduce overall virgin plastic demand over time, encouraging investment projects in sustainable alternatives and recycling infrastructure.
Kenanga Research has maintained the OVERWEIGHT call for the plastics sector.
One of the analysts’ sector top picks is Thong Guan Industries Bhd due to inexpensive market valuation and growth potential evident from its competitive edge in gaining overseas market share, aggressive push into Europe and US markets with environmentally-friendly, high-performing products, and lastly expansion plans for premium products, such as nano stretch films, food wraps and some industrial bags (wicketed bread bags, oil/flour/sugar bags).
Thong Guan has been awarded a target price of RM2.80. As at 9:37am on Nov 5, Thong Guan’s shares traded at RM1.51, down one sen from its previous settlement of RM1.52. (Stock updates from Bursa Malaysia)
Another sector top pick, SLP Resources Bhd, is experiencing increased customer interest in its machine direction-oriented (MDO) PE mono films. The company is also actively promoting its sustainable packaging solutions in ASEAN1 countries, capitalising on the demand for recyclable materials by regional Asian manufacturers with customers in Europe or US.
Analysts have set a target price of RM1.05 for SLP Resources. The company’s stock price stood at RM0.89 on Nov 4.
Meanwhile, two local stretch film players, which are developing innovative packaging solutions, are also favoured by Kenanga Research, namely BP Plastics Holding Bhd with a target price of RM1.42 and Scientex Bhd with a target price of RM4.15.
Analysts favour BP Plastics for its strong foothold in the Southeast Asian market which is expected to remain resilient despite global economic uncertainties, strong cash flows and balance sheet (a net cash position) that will enable it to weather downturns better, and lastly long-term capacity expansion in high-margin premium stretch film and blown film products, positioning it to capitalise on the next up-cycle.
As at 5:00pm on Nov 1, BP Plastics’ stock settled at RM1.25, rewarding a 17 sen, or nearly 14%, premium over its target price.
Scientex, on the other hand, is favoured due to its expanding global market share attributatble to cost advantages compared to overseas competitors, strong market position being the largest flexible plastic packaging manufacturer in the region, and lastly robust demand for its affordable residential property development with overwhelming take-up achieved.
As at 9:41am on Nov 5, Scientex Bhd’s stock price stood at RM4.61, up by 2 sen from its settlement price of RM4.59 recorded on Monday.
Plastic material is valued for its versatility, durability, and adaptability, especially as global markets transition towards lightweight and resilient materials across diverse sectors, from consumer goods, electronics, automotive, aerospace, construction, food production, renewable energy, and healthcare where plastic-based materials are critical for sterile packaging and medical devices.
While plastic-based packaging offers invaluable functionality, their environmental impact has prompted governments and industries to reconsider material choices as well as adopt more sustainable circular practices. Locally, Malaysia has tabled the nearly 5-year Plastic Neutrality Masterplan 2024-2030.
The Malaysian plastic industry is sizeable, employing 175,000 workers across 800 companies (not including the petrochemical segment) and generating about RM90 billion in revenue with sizeable exports to Europe, USA, Singapore, Australia and Japan.
However, there is growing recognition in Malaysia to upscale recycling and reduce plastic waste. As such, the Masterplan 2024-2030 outlines four main objectives, namely, (a) to achieve zero plastics to landfill and to be circular and have net-zero, (b) to sustainably address plastics pollution in Malaysia, ensuring economic development, environmental protection and societal wellbeing, (c) to provide guidance and promote sustainable business practices in ensuring plastic circularity and sustainability through circular economy approach, and (d) to harmonise actions along the plastic value chain through adoption of life cycle approach.
A circular economy in the plastics sector involves redesigning products for longevity, increasing recycling capacity, and minimising single-use applications.
Key initiatives include advancing recycling technologies including chemical recycling for complex plastics to encourage the use of recycled materials, implementing extended producer responsibility (EPR) schemes, and investing in public education to increase awareness of sustainable consumption alongside the implementation of separation at source (SAS).
By setting actionable targets and encouraging stakeholder collaboration with milestones set through 2030, the Masterplan envisions Malaysia as a leader in plastics sustainability, aligning with national and global environmental goals
Malaysian plastic exporters sell products and purchase resins both denominated in US dollar. As such over the long term there is a natural hedge against the ringgit to US dollar fluctuation.
However, considering recent rapid strengthening of the ringgit in the third quarter of 2024, and some resin inventories acquired when the ringgit was weaker, the benefits of cheaper resins will not be immediate and are expected to surface only over the next quarter, or two as new lower-cost inventory replaces the old.
On the flip side, a stronger rinngit means that US dollar-denominated revenues translate into lower revenue denominated in ringgit upon conversion, thus reducing profit margins in local currency terms.
In the nearer term, sustained orders are expected through 2025, driven by global economic activity with local exporters set to gain more market share from overseas rivals. Exporters may suffer temporary margin compression from recent rapid strengthening of the ringgit amid an overall growth that is still inching up going by order flow.
On the environmental front, the analysts are watching for development under the United Nations Environment Assembly (UNEA) Resolution 5/14 that aims to end plastic pollution through an international legally binding instrument. Further details are expected to emerge by December this year.
Subsequently, the Intergovernmental Negotiating Committee (INC) has been established with the goal of creating a legally binding global treaty to end plastic pollution. This initiative covers the full life cycle of plastics, from production to waste management, with an emphasis on reducing marine and environmental pollution.
The upcoming INC session (Nov 25 – Dec 1, 2024) to be held in Busan, South Korea, is expected to effect significant regulatory changes, such as restriction on primary plastic polymer production and the inclusion of Chemicals of Concern (CoCs) in the treaty.
These expected changes could impose supply-side constraints and impact the development of recycling technology which may add pressure to the industry’s efficient management of plastic waste. For the industry, this could mean shifting towards sustainable alternatives, redesigning products for circularity, and navigating stricter regulations that may affect both production and operational costs.
- ASEAN: The Association of Southeast Asian Nations ↩︎
