Investment Highlights

• Stock idea. BP Plastics Holding (BPPlas) is a Johor-based manufacturer that supplies specialty polyethylene (PE) film to diverse sectors such as logistics, warehousing, industrials, consumer and food & beverage (F&B).

• The company is one of the top 3 local producers of industrial stretch film based on production capacity and also a major stretch film exporter to the Asia Pacific region. Following the addition of a cast stretch film machine commissioned in December 2021, BPPlas’ monthly installed capacity has increased by 18% to 10,000 metric tonnes currently.

• It registered a steady CAGR bottom-line growth of 14% (Exhibit 2) in FY16–FY20. It has a healthy balance sheet with net cash of RM26mil and zero borrowings as at 9MFY21.

• BPPlas’ earnings growth is underpinned by its key products, cast stretch and blown PE films, which made up 75% and 25% of FY20 revenue respectively. Both products carry gross profit margins in the mid-to-high teens.

• Exports account for the majority of revenue in which Asian countries contribute 63% to the group’s 9MFY21 total revenue, followed by Malaysia (25%) and other Middle Eastern countries (12%).

• The group has also invested in a 10th cast stretch film machine to raise its monthly capacity by 15% to 11,500 metric tonnes, which is scheduled for completion in 2H2022. Presently, the company has 9 cast stretch film and 21 blown PE film machines.

• BPPlas has consistently rewarded its shareholders with a dividend policy of 40%, which supported a substantive growth trajectory since FY18. In 3QFY21, the company declared a 3 sen dividend, raising 9MFY21 dividend to 9 sen, which already translates to a compelling 6% yield currently. For FY21F, this could be even higher if the group declares 4QFY21 dividends.

• Key risks to the group stem from supply disruptions of raw materials and the fluctuations of resin pricing, workforce restrictions due to Covid-19 and delays in expansion plan.

• Based on consensus earnings, the stock conservatively trades at FY22F PE of 8x, at an unjustified discount of 33% to local and regional stretch film makers’ 12x. This is despite the company’s higher FY21–23F CAGR sales growth rate of 10% vs. peers’ average of 7% (Exhibit 6), better product mix that support higher average selling prices (ASP) and net cash position.

Source: AmInvest Research - 11 Jan 2022