• Benefiting from weaker Ringgit and increased capacity. BPPLAS (listed in Feb 2005) solely focuses on plastic manufacturing and specialises in polyethelyn film, which are mostly used for industrial packaging and bag manufacturing. Its products are mainly for exports markets (~80% of revenue), while the remainder are sold in Malaysia. Similar to other export based plastic packagers, BPPLAS is riding on the wave of higher revenue driven by: 1) high ratio of export sales benefitting from a depreciating Ringgit, (ii) relatively stable resin prices due to falling Crude oil prices since Nov-14 and excess supply. The Group anticipates the global demand for manufacturing goods as well as polyethylene packaging products to remain resilient, especially in the still growing Asia- Pacific regions.

• Export-oriented stocks back to limelight again? In the short to medium term, RM (vs US$) is expected to weaken as the Fed will remain deliberate in raising interest rates as the Bloomberg polls for monetary tightening in December hovered at 66%. As such, we believe rotational plays on export-oriented sectors such as gloves, E&E, packaging, furniture-related will gain momentum.

• Undemanding valuations. BPPLAS is trading at 13.1x P/E (ex-cash 10.5x), which is 21% below its peers P/E of 16.6x as well as supported by attractive yields of 5.2% (87% higher than peers’ 2.8%). In terms of P/B, current valuation of 1.74x is also trading at 40% discount to its peers.

• Potential downtrend reversal amid Tweezers bottom formation. After tumbling 23% from 52-week high, BPPLAS is ripe for imminent technical rebound following the formation of Tweezers bottoms and upticks in daily indicators. On the weekly chart, BPPLAS prices are currently gyrating within the major triangle formation. Both MACD and RSI readings are largely neutral while slow stochastic indicator is steeply oversold. We expect prices to breakout to the upside.

• A decisive breakout above RM1.56 (downtrend line) will spur prices higher towards RM1.63 (200-d SMA and 38.2% FR) and RM1.71 (50% FR) before reaching our LT objective at RM1.78 (61.8% FR). Key supports are situated near RM1.52 (daily lower Bollinger band) and RM1.46 (weekly lower Bollinger band). Cut loss at RM1.45.

Source: Hong Leong Investment Bank Research - 18 Oct 2016