Summary

• BP Plastics Holding Bhd’s (BPPLAS) 2Q21 net profit surged 74.4% YoY and 52.7% QoQ to RM14.8m, bringing a significant 66.4% rise in 1H21 net profit as compared to 1H20. The results came in above expectations, amounting to 75.1% of our previous full year consensus of RM32.5m. Key drivers include higher sales and better product mix during the quarter. Meanwhile, an interim dividend of 2.0 sen and a special dividend of 1.0 sen was declared.

• Higher revenue in 2Q21 were mainly contributed by a stronger demand for packaging films arising from Malaysia and Asia countries, which saw an improvement both YoY and QoQ, bottomline was further improved by a better product mix as BPPLAS remained focus on supplying higher margin film including value-added customised blown PE film and differentiated superior quality cast.

• Cost wise, elevated resin pricing has been prevalent in the previous quarter, as ongoing labour issues and containers shortage due to Covid-19 pandemic, coupled with growing consumer demand for plastic products continued to ruin the market. Nevertheless, robust demand for plastic packaging products granted the company negotiating power to pass through the cost inflation by raising ASP.

• Consequently, better product mix coupled with appropriate supply chain management strategy have led to margin growth in 2Q21. BPPLAS’ core profit margin stood at 13.6% in 2Q21, which was up 3.1% YoY and 3.9% QoQ (vs. core profit margin registered at 10.5% in 2Q20 and 9.7% in 1Q21).

• Moving forward, we expect prices of resin and plastic packaging films to remain firm in the immediate future as demand has been picking up amid the reopening economic activities on the global front. On the local front, we believe demand would also grow along with the increasing vaccination rates.

• BPPLAS remained committed to facilities upgrade to support capacity expansion, targeting a production capacity of 10kMT per month of 120kMT p.a. with the commissioning of the 9th cast line machine by end of FY21. Besides, BPPLAS’ net cash position (RM78.9m in 2Q21, net cash per share of 42.0sen) could support the company’s plan to reinvest in high-end innovative machines that can widen its product offerings.

Valuation & Recommendation

• Following the stronger-than-expected results, we raised our forecasted earnings by 20.6% to RM39.2m and by 14.5% to RM41.0m for FY21f and FY22f respectively to account for the increasing demand in BPPLAS’ products and better margins deriving from value-added customised products. We maintained our BUY recommendation on BPPLAS, with a revised target price of RM3.06 as we are rolling forward to the FY22f earnings. The target price is arrived by ascribing a target PER of 14.0x to its FY22f EPS of 21.9 sen.

• Outlook wise, we remained bullish on BPPLAS earnings growth underpinned by its proven product mix strategies, as well as the upcoming capacity expansion with the commissioning of 9th cast line machine by end of FY21. Meanwhile, the improving demand for plastics packaging films following the gradual reopening of economic activities bodes well for BPPLAS’ topline.

• Risks to our recommendation include resurgence of Covid-19 cases and spread of Delta variant which may delay the normalisation of economic activities. Besides, fluctuation in resin prices may potentially dent the company’s margins.

Source: Mplus Research - 23 Aug 2021