BPPLAS’s FY22 results met expectations. FY22 net profit contracted 33% as it was overwhelmed by rising input and labour costs. Nevertheless, it is expanding with the acquisition of two blown film machines and a factory. We maintain our FY23F earnings, TP of RM1.23 and MARKET PERFORM call.

Within expectations. FY22 net profit met expectations. FY22 revenue grew by 12.4% due to higher sales volume locally and a better product mix (i.e. with more premium stretch film and blown film products). However, net profit contracted 33% mainly due to escalation in input and labour cost.

Meanwhile, its expansion plan involving two co-extrusion (coex) blown film machines (costing c.RM19m) to expand its production capacity of specific blown PE film products such as shrink film, stretch hood, and lamination film is progressing well. The two machines with a combined rate capacity of 1.2-1.4k tonnes/month will raise its total annual nameplate capacity for both segments to c.152k tonnes. Production is expected to come online around end-FY23 with maiden contribution in FY24. BPPLAS has also completed the acquisition of a factory building on a 4-acre land in Batu Pahat to house the new machines, and for warehousing.

BPPLAS is cautious on 1HFY23 amidst the global economic uncertainties but expect demand to recover gradually in 2HFY23, assuming the global economy is on a recovery path by then.

Forecasts. We maintain our FY23F earnings and introduce our FY24F numbers.

We like BPPLAS for: (i) its strong foothold in the South East Asia market which is expected to remain resilient despite the global economic uncertainties, (ii) its strong cash flows and balance sheet (a net cash position) that will enable it to weather downturn better, and (iii) its long-term capacity expansion in high-margin premium stretch film and blown film products, which will enable it to capitalise on the next upcycle. However, a significant decline in demand in the event of a sharp slowdown or recession in the global economy is a concern.

Maintain MARKET PERFORM with TP of RM1.23 as we maintain our valuation at FY23F PER at 9x, at a discount to average historical PER of 13x largely to reflect BPPLAS’s relatively smaller market capitalisation and thin share liquidity. There is no adjustment to TP based on its 3-star ESG rating as appraised by us. (Page 4)

Risks to our call include: (i) sustained higher resin cost, (ii) reduced demand for packaging materials in the event of a sharp slowdown in the global economy, and (iii) labour shortages.

Source: Kenanga Research - 28 Feb 2023