BPPLAS’s 1QFY23 results missed our expectation but met market expectation. 1QFY23 top line dropped 11% YoY as ASP fell more than expected on falling cost of input resin, but bottom line held up, thanks to a better product mix. We cut our FY23-24F earnings forecasts by 14% and 9%, respectively, but maintain our TP of  RM1.23 as we roll forward our valuation base year to FY24F (from  FY23F). Reiterate MARKET PERFORM.

Below our expectation. 1QFY23 results missed our expectation at only  20% of our full-year forecast but met market expectation at 22% of the full-year consensus estimate. The key variance against our forecast came from its ASP that fell more than expected on falling cost of input resin.

Results’ highlights. 1QFY23 revenue slipped 11% largely due to the decline in its ASP on falling cost of input resin. However, net profit improved slightly by 0.9%, mainly due to better product mix and improvement cost efficiency.

Outlook. BPPLAS remains cautious of 2QFY23 on weak demand for plastic packaging materials amidst global economic uncertainties. It is hopeful that the situation will gradually improve in 2HFY23, assuming the global economy is on a recovery path by then. Its two new blown film machines are on track to come online by end-FY23. We understand that  BPPLAS participated in the “Interpack” international plastic and packaging trade fair in Germany recently, and received overwhelming enquires on its premium stretch film.

Forecasts. We cut our FY23-24F earnings forecasts by 14% and 9%,  respectively, to reflect the softer-than-expected ASPs for commoditised products amidst slowdown in global economy.

However, we maintain our TP of RM1.23 as we roll over our valuation base year to FY24F (from FY23F) with an unchanged ascribed 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 our TP based on ESG given a 3-star rating as appraised by  us. (Page 4)

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 downturns better, and (iii) its longterm capacity expansion in high-margin premium stretch film and blown film products, which will enable it to capitalise on the next up-cycle.  However, it prospects over the immediate term is clouded by a slowdown in the global economy. Maintain MARKET PERFORM.

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 - 29 May 2023