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Author: loginvest   |   Latest post: Wed, 14 Oct 2020, 8:41 AM

 

BP Plastics Holdings Bhd - 3Q FY 2019 Update Report (HOLD)

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UPDATE REPORT

YTD 3Q FY 19 sales and profits have held up reasonably well at BPP, however profits are slightly lower, corroborating our view that economic conditions in Malaysia and especially Singapore continue to deteriorate. The recent rate cuts around the region support our cautious outlook for the next few quarters. Management has done a fine job of reducing controllable costs, however increasing trade tensions, and rising machinery upkeep and electricity costs may limit margin expansion over the next few quarters. Indeed, management indicates that trading conditions will remain challenging over the next few quarters. At prices below MYR 0.90 value investors will want to accumulate more aggressively

INVESTMENT RISKS

Risks to our recommendation and target price include: i) a stronger USDMYR exchange rate, ii) an increase in resin prices and production costs, and iii) a sharp slowdown in the general level of economic activity in Asia, Middle East and Europe. Prices for ethylene and polyethylene have been lower 2H 19 vs 1H 19. While positive for BPP’s margins, the price weakness in these materials may signal lower demand ahead

RECOMMENDATION

We maintain our HOLD recommendation on BP Plastics Holding Berhad (“BPP”) whilst raising our fair value estimate to MYR 1.10. Looking ahead, average ROE is likely to be maintained at levels of 10-11%, whilst P-BV stands on 1.1x trailing book value and 1.1x current year book value. Importantly, the company has a very clean balance sheet.

YTD 3Q 19 total export sales amounted to about 72% of total sales, with about 63% of sales in USD, 10% in SGD and remaining in EUR & JPY. The company has a dividend policy of paying out a minimum of 40% from its net profit. We maintain our estimated dividend payments for FY 19 and FY 20 at 6 sen per share. At current prices, the prospective dividend yield is likely to remain at or above 5.0%

COMPANY PROFILE

BP Plastics Holding Bhd (BPPLAS) is an investment holding and provision of management services company. The principal activities of the Company, through its subsidiaries is manufacturing and trading of plastic products. Its subsidiaries include BP Plastics Sdn Bhd, BP Packaging Sdn Bhd, BP Packaging Sdn Bhd and Baoman Rubber Limited. On June 10, 2010, the Company acquired 100% interest in BPPlas Plantation Sdn. Bhd. (BPPlas Plantation). On October 5, 2010, BPPLAS incorporated a wholly owned subsidiary, Baoman Rubber Limited (Baoman).

Source: Wilson & York Securities Research - 25 Nov 2019

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