BP Plastic Berhad (BPPLAS) reported another sequentially stronger quarter, with a 2QFY23 net profit of RM9.9m (+18.8% QoQ) attributed to better product mix, though weaker YoY (-19.2%) owing to weakened demand arising from global economic uncertainties. Cumulative 1HFY23 net profit of RM18.2m (-8.0% YoY) is above our and consensus expectations, accounting for 60.1% and 57.0% of full-year estimates, respectively. We keep our forecasts unchanged however as near-term outlook for the Group may continue to be challenged by weak demand for industrial packaging on the back of the global economic slowdown. We maintain our Neutral call with unchanged PE-based TP of RM1.46. BPPLAS declared a second interim dividend of 1.5sen (2QFY22: 1.5sen).

• 2QFY23 revenue fell to RM110.2m (-21.0% YoY, -6.1% QoQ) on lower average selling price (ASP), while sales volume remained stable. Revenue from domestic and export market YoY contracted by 21.6% and 20.8% respectively.

• 2QFY23 net profit grew 18.8% QoQ to RM9.9m despite lower revenue mainly due to better product mix and partly aided by better efficiency from new production lines. Though weaker YoY (-19.2%) in-line with lower revenue as a result of weakened demand arising from global economic uncertainties, pre-tax profit margin improved to 11.1% from 9.1% in the preceding quarter. The Group also saw lower effective tax rates due to reinvestment allowance in one of its subsidiaries.

• Outlook. The Group’s near-term outlook is still marred by the ongoing global weakness, geopolitical tensions, inflationary pressure and constricting financial market conditions. Despite headwinds, there are signs of gradual improvements in the operating environment over the medium to longer-term. Headline inflation has fallen in most economies due to the downturn of energy prices. Resin prices and freight rates are falling back to pre-pandemic levels as supply chains around the world continue to recover. The Group remains committed to investing in cutting-edge technology and expand market share. With two additional units of Blown Co-extrusion machines to be added by the end of 2023, production capacity is expected to increase to 12,200 MT per month.

Source: PublicInvest Research - 23 Aug 2023