BP Plastic Berhad (BPPLAS) reported a stronger quarter with 3QFY23 net profit of RM7.3m (+35.6% YoY) attributed to better product mix, though weaker QoQ (- 26.4%) owing to higher production cost. Cumulative 9MFY23 net profit of RM25.3m (+1.3% YoY) is within consensus but above our expectations, accounting for 77.8% and 84.1% of full-year estimates, respectively. Our forecasts are kept unchanged. While we remain positive on the long-term prospects of BPPLAS, near-term outlook for the Group may continue to be challenged by weak demand for industrial and logistic packaging amid the global economic weakness. We maintain our Neutral call with an unchanged PE-based TP of RM1.46 (10x FY24 EPS). On a side note, BPPLAS declared a third interim dividend of 1.5 sen (3QFY22: 1.0sen).

• 3QFY23 revenue fell to RM117.2m (-2.9% YoY) mainly due to lower average selling price (ASP), though sales volume remained stable. Revenue from domestic market contracted by 16% YoY, partly offset by higher revenue from export markets (+3.6% YoY).

• 3QFY23 net profit grew 35.6% YoY to RM7.3m despite lower revenue mainly due to better product mix and partly aided by better efficiency from new production lines. Pre-tax profit margin improved to 7.3% from 5.0% in the preceding quarter. Net profit was weaker QoQ (-26.4%) due to higher production cost.

• Outlook. The Group’s near-term outlook may continue to be challenged by weak demand for industrial and logistic packaging amid global economic weakness, the elevated global interest rate environment and geopolitical conflicts in Ukraine and recently, the Middle East. Despite headwinds, there are signs of gradual improvements in the operating environment and demand in 2HFY23. Headline inflation is showing signs of cooling while 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 in pursuit of business growth. With two additional units of Blown Co-extrusion machines to be commissioned by the end of 2023, production capacity is expected to increase to 12,200 MT per month in FY24. Along with the production capacity expansion and its strong balance sheet (net cash), the Group is well positioned to capitalise on the next demand up-cycle.

Source: PublicInvest Research - 22 Nov 2023