Summary

• BP Plastics Holding Bhd’s (BPPLAS) 4Q21 net profit surged 47.1% YoY to RM11.9m, bringing a significant 56.4% increase in FY21 net profit vs. FY20. The results came in largely in line, amounting to 102.6% of our full year consensus of RM45.3m. Key drivers include stronger demand and higher average selling price (ASP) in all geographical segments. Meanwhile, a fourth interim dividend of 2.0 sen per share, payable on 8th April 2022 was declared.

• QoQ, BPPLAS’s core net profit advanced 17.8% to RM11.9m, mainly resulted from a stronger demand in 4Q21 which has offset the slight ASP decline. Consequently, BPPLAS reported a core net profit margin of 9.5% in 4Q21, which was up 1.0% YoY and 0.6% QoQ (vs. core profit margin registered at 8.5% in 4Q20 and 8.9% in 3Q21).

• Production capacity currently stood at 10kMT per month or 120kMT p.a. following the commissioning of the 9th Cast Stretch Film machine in December 2021. BPPLAS remained committed in the capacity expansion plan, targeting to commission the 10th Cast Stretch Film machine in FY22 and lift the production capacity to 11kMT per month or 132 kMT p.a. Meanwhile, product mix remained largely consistent as compared to 3Q21.

• BPPLAS’s plan in capacity expansion and product innovation is backed by the group’s strong financial position. As at 4Q21, the group’s net cash position stood at RM60.9m, while net cash per share recorded at 21.6 sen after acquiring the 9th Cast Stretch Film machine.

• Cost wise, the resin prices have been whittled down over 4Q21 as supply continued to outpace demand. While downward pressure persisted, the resin prices saw mild rebound in recent weeks. We believe the gradual resin price erosion should not burden the BPPLAS’s margin as any volatility in resin price will be priced into the group’s monthly sales pricing quotation.

• Moving forward, we believe demand for plastic packaging products should remain robust amid normalization of economic activities. Although recent weeks saw the Covid-19 infections surging, we believe the higher rate of vaccination should keep most patients under milder categories.

Valuation & Recommendation

• Although the core net profit is within our expectations, we raised our earnings forecast by 6.0% to RM48.0m for FY22f and project the FY23f earnings at RM49.6m taking into account the solid demand for their products and the capacity expansion after the commissioning of the 9th Cast Stretch Film machine in December 2021, as well as the upcoming 10th Cast Stretch Film machine in 4Q22.

• We maintained our BUY recommendation on BPPLAS, with a revised target price of RM2.39 after taking into consideration the recent bonus issue. The target price is derived by ascribing a target PER of 14.0x to its FY22f EPS of 17.0 sen.

• Risks to our recommendation include the recent resurgence in Covid-19 cases under Omicron wave which may slow the economy recovery. Besides, the plastic packaging players may face challenges in cost management under the inflationary pressure in the whole business environment.

Source: Mplus Research - 22 Feb 2022