BP Plastic Berhad (BPPLAS) posted a lower net profit of RM5.4m in 4QFY22 (- 54.3% YoY) due to weaker demand and higher production costs. This brings full year FY22 net profit to RM30.5m. Results were within our and consensus expectations, accounting for 101.6% and 101.0% of full-year estimates, respectively. We keep our forecasts unchanged. While near-term earnings outlook may continue to be challenged by weak demand and escalating production costs, we expect a gradual improvement in operating environment towards the 2nd half of 2023 following China’s reopening. We retain our Neutral call with marginally higher P/E-derived target price of RM1.46 (RM1.40 previously) as we roll over valuation year to FY24F with a lower peers’ average PER of 10x (previously 13x). On a side note, BPPLAS declared a final dividend of 1.5sen, bringing total dividend for FY22 to 5.5sen (FY21: 8.0sen).

• 4QFY22 revenue fell by 11.6% YoY due to weakened demand arising from global economic uncertainties which resulted in lower sales volume in the current quarter.

• 4QFY22 net profit was down 54.3% YoY to RM5.4m due to lower revenue and higher production and overhead cost. Pre-tax profit margin fell to 5.0% compared to 11.2% in 4QFY21. A lower statutory tax rate of 1.7% due to reinvestment allowance in one of its subsidiaries helped cushion the margin squeeze however.

• Outlook for the Group in near term is expected to remain challenging. While pricing for resins may have peaked, we expect margin compression to persist in 1st half of 2023 on demand weakened by macro headwinds and elevated production cost, exacerbated by upward adjustment in the electricity tariff via Cost Pass-Through (ICPT) mechanism for 6-month period from Jan to Jun of 2023. On the positive note, the supply-demand situation is expected to improve following China’s reopening recently. With the Group’s continuous focus on supply chain, cost management, prudent capacity expansion and new market expansion, we anticipate a stronger quarter towards the 2nd half of 2023.

Source: PublicInvest Research - 28 Feb 2023