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.
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