Summary

• BP Plastics Holdings Bhd’s (BPPLAS) prospects remain fairly challenging, as demand for flexible plastic packaging products which supports different sectors such as electrical and electronics, food and beverages, furniture, as well as other industrial and consumer packaging remained lackluster amid global economic slowdown despite the reopening of China’s borders and Covid-19 pandemic.

• We anticipate that the margin for BPPLAS to remain around 4-6% given the gradual depletion of high-cost resin inventory coupled with a gradual decline in resin prices. However, the volatility in crude oil prices recently could pose a challenge to the group’s pricing mechanism, translating to margin compression.

• Also, the Imposition Cost Pass Through (ICPT) electricity rate hike from 3.7sen/kWh to 20sen/kWh for medium and high voltage users in Malaysia, coupled with the implementation of new Employment Act that increased the national minimum wage to RM1,500, as well as other rising operating costs in an inflationary environment are likely to impact the group’s operating costs. With the anticipated softer demand going forward, industry players may see difficulties in passing through higher costs amidst heightened competition.

• BPPLAS remained committed to invest in cutting-edge technology. With the successful commissioning of the 10th Cast Stretch Film machine in end-FY22, capacity has increased to 11.5kMT per month (138kMT p.a.). The group expects to commission two units of Blown Co-extrusion machines by end-FY23, which is expected to boost its production capacity to 12.2kMT per month (146.4kMT). Nevertheless, we anticipate that the utilisation rate will remain in the range of 50.0- 55.0% due to softened demand which has temporarily affected the industry.

• After consideration, we have come to a conclusion to cease coverage on BP Plastics Holding Bhd due the lack of both retail and institutional interest in the stock as well as reallocation of our internal resources. We reckon that the trading activities could remain subdued in the foreseeable future, as the absence of fresh catalysts may limit the upside potential of the share prices.

• Our last recommendation on BPPLAS was HOLD with a fair value at RM1.32. The fair value is derived from ascribing a target PER of 14.0x to its FY23f EPS of 9.4 sen.

Source: Mplus Research - 15 May 2023