BP Plastic Berhad (BPPLAS) announced that it has entered into a sale and purchase agreement with KHP Steel Product (M) SB to acquire a parcel of leasehold land measuring 4 acres, situated at Lot 36918, Jalan Wawasan 12, Kawasan Perindustrian Sri Gading, Batu Pahat for RM14.9m to be funded via internally generated funds. The move is consistent with the Group’s strategy to increase production capacity to meet growing demand from the export markets. The price paid appears to be fair, at c.RM85psf compared to median price of RM83psf for recent transactions for industrial land in Batu Pahat. No change to our earnings estimates as the deal is expected to be completed only in 2H2023. We retain our Neutral call with an unchanged TP of RM1.40 based on a 13x P/E multiple to its FY23F EPS.

• Land details. The land is a parcel of leasehold land (60-year lease expiring on 4 Feb 2058), measuring c.4.0 acres. The land use is for industrial purposes located at Kawasan Perindustrian Sri Gading in Batu Pahat. Currently, there is a double storey office building, annexed single-storey factory and one block of single-storey detached factory on the said property.

• Rationale. The property will be used by BPPLAS for expansion of its flexible plastic packaging business. The proximity of the land to its existing operations was a factor in the decision to acquire the property. It could to boost BPPLAS’ production capacity by 40k MT/year. To recap, BPPLAS is commissioning of its 10th cast line machine, which is expected to be operational by 1Q23 and boost its production capacity from 120k MT/year to 140 MT/year.

Source: PublicInvest Research - 24 Aug 2022