• BP Plastics Holding Bhd (BPPLAS) is a specialty plastics packaging manufacturer backed by high customer retention rate, supplying high quality stretch film and customised PE film for various essential sectors.

• Capitalising on the growing demand for plastics packaging film, BPPLAS is in a position to undertake new capacities and technology by commissioning new machines, supported by its strong cash position.

• We initiate coverage on BPPLAS with a BUY call and fair value of RM2.43, based on 14.0 P/E pegged to its forward FY21f EPS of 17.3 sen.

Investment Highlights

• Vital supporting role to various industries. We like BPPLAS for its significant role various industries, including F&B, logistics, E&E, as well as other industrial and consumer packaging; it is one of the industries least impacted during any economic downturn. Do note that the Group’s bottom line in FY20 grew despite a lower top line, which was impacted by the Covid-19, pandemic.

• Outperforming its peers. The Group’s current ROE and ROA (trailing twelve months) stood at 33.6% and 12.3% respectively beating its peers at 14.7% and 9.4%. These solid ROE and ROA attributed to its appropriate cost rationalization measures and coordinated pricing strategies implemented. Also, BPPLAS has been paying generous dividend in the past 5 years with an average payout ratio of over 50%.

• Capacity expansion to address growing demand. The commissioning of the 9th cast line machine by end-FY21 is expected to boost BPPLAS’s production capacity from 102kMT p.a. to 120kMT p.a. The strategy is in line with the increasing demand for plastics packaging moving forward amid reopening of economic activities and improving market sentiments. At this point, 5Y average utilisation rate stood at 73%.

Source: Mplus Research - 26 Jul 2021