Although we had expected its earnings to be resilient amid this pandemic, 1HFY21 CNP of RM24.6m nevertheless came above expectation, at 68% of our FY21 estimate. 1HFY21 DPS of 6.0 sen also came above expectation at 67% of our FY21E DPS of 9.0 sen. Hence, we raise FY21-22E CNP (by 25-27%) as we remain bullish on BPPLAS’s continued growth from robust demand and capacity expansion. Maintain OP with new TP of RM3.15 at 13x PER on FY21E EPS of 24.1 sen.

1HFY21 CNP above estimate. 1HFY21 revenue/CNP of RM209m/RM24.6m came in above our expectations at 55%/68% of our full- year estimate. 2QFY21 DPS of 3.0 sen brought 1HFY21 DPS to 6.0 sen, which is above our estimate of 9.0 sen.

YoY, revenue rose 32.4% to RM209m mainly due to higher sales volume to an existing customer, and higher ASPs for both local and export markets. PBT rose 56% due to better product mix. CNP rose 69.3% on a lower effective tax rate of 20% (vs. 1HFY20: 25%)

QoQ, revenue rose by 8.9% from RM100m to RM109m thanks to: (i) higher sales volume from both stretch film and blown film segments, from existing customers and (ii) elevated ASPs. PBT improved by 57% likely due to better product mix and cost efficiencies. All in, CNP rose by 50%.

Outlook. Despite the prolonged lockdown and the 60% workforce limit, BPPLAS is still able to maintain its resilient earnings on the back of: (i) robust demand, shown by its high utilization rate of 70-75% (near the maximum 80%) and (ii) elevated ASPs amidst fluctuating resin costs. BPPLAS’ capacity expansion plan (9th Cast Stretch Film machine) is still on track and it will start production in late 4QFY21, which we have imputed its contribution in FY22E. We believe that ASPs will decline gradually and normalize in subsequent quarters as resin prices are still in a downtrend. As the National Immunization Programme roll-out completes and economy reopen, it will allow BPPLAS to resume to its usual workforce. Thus, we believe that BPPLAS will be able to deliver resilient earnings in 2HFY21.

Increase FY21E/FY22E estimates. We increase FY21E revenue/CNP by 8%/25% to RM411.1m/RM45.3m to account for the robust demand for higher-margin product mix. We also raise FY22E revenue/CNP by 12%/27% to RM448.1m/RM50.1m to account for BPPLAS’s expansion plan. We introduce new DPS of 10.0 sen each for FY21 and FY22, implying 5.3% yield.

Maintain OUTPERFORM with new TP of RM3.15 (from RM2.50) based on FY21E EPS of 24.1 sen and an ascribed PER of 13x PER, which is +1.0SD to its 5-year mean of 8.3x. We believe BPPLAS deserves the valuation premium for: (i) robust demand from export and local markets, (ii) larger customer base, and (iii) capacity expansion for its premium stretch film. BPPLAS also offers an attractive dividend yield of 5.3%, which is above the industry average of 3%.

Risks to our call include: (i) higher-than-expected resin costs, (ii) lower- than-expected export demand (iii) foreign currency risk.

Source: Kenanga Research - 23 Aug 2021