• 9MFY23 core net profit of RM26.0m was above expectations at 80.9% of our FY23F estimate and 80.3% of Bloomberg consensus.

• Newer, more efficient machines and demand from local F&B clients a boon to operating efficiencies. 9MFY23 EBITDA margin was 11.7%, up 2.0% pts yoy.

• We reiterate our Add rating with a TP of RM1.39, based on an 11x CY24F P/E multiple, BPP’s average historical 1-year forward P/E.

Core Net Profit Above Expectations on Leaner Operations

• BP Plastics Holding’s (BPP) recorded a 9MFY23 core net profit of RM26.0m (+5.1% yoy), which was above expectations at 80.9% of our FY23F estimate and 80.3% of Bloomberg consensus. This was on the back of a 2.0% pts rise yoy in EBITDA margins to 11.7%, which we attribute to improving operating efficiencies from (1) newer and more efficient machines in the Cast Stretch segment, and (2) local F&B demand sustaining Blown PE segment capacity utilisation. YTD, we estimate the proportion of revenue from Cast Stretch and Blown PE films is ~75% and ~25%, respectively.

Revenues Impacted by Lower ASPs But Offset by Higher Volumes

• BPP’s 9MFY23 revenues came in below expectations at RM344.7m (-12.1% yoy), 67.0% of our FY23F estimate and 67.3% of Bloomberg consensus, with the decline being largely attributable to lower ASPs amidst overall softer global demand relative to FY22. Notably, there was an uptick in sales to customers outside of Asia (mainly Europe) in 3Q23 to RM21.2m (+35.3% yoy, +26.0% qoq), which we attribute to international demand for BPP’s more premium nano cast stretch films.

Reiterate Add and TP of RM1.39

• We reiterate our Add call on BPP for its improving operating efficiency and potential margin expansion, with our TP of RM1.39 providing 12.4% upside. We base our TP on an 11x CY24F P/E multiple, which is BPP’s average historical 1-year forward P/E (Fig 5) and, in our view, undemanding compared to its local peers, which trade at 6.0-12.8x CY24F P/E (Fig 6). We believe BPP’s valuations will remain supported by its 4.8% dividend yield (FY23-25F) and its solid net cash position of RM72.0m as at 3Q23 (20.6% of its current market cap). Re-rating catalysts include a stronger-than-expected recovery in global demand for plastic film products and a larger-than-expected contribution from blown PE film products, which command higher margins. Key downside risks include softer-than-expected global demand for plastic film products impacting plant utilisation rates and leading to lower operating efficiencies and a contraction of EBITDA margins.

Source: CGS-CIMB Research - 22 Nov 2023