BPPLAS’s FY23 results met expectations. Its FY23 core net profit rose 7% driven by an improved product mix. It is cushioning the slowdown in the plastic packing sector by stepping up the production of premium stretch film and value-added blown film. We maintain our FY24F net profit forecasts, TP of RM1.23 and MARKET PERFORM call.

Within expectations. BPPLAS’s FY23 core net profit of RM33.5m met expectations. It declared a DPS of 1.5 sen in 4QFY23, bringing FY23 dividend to 6.0 sen which exceeded our expectation by 9%.

YoY, its FY23 revenue declined by 7% due primarily to: (i) reduced ASPs in tandem with lower resin cost and intense market competition, and (ii) weaker demand for plastic packaging amidst a global economic slowdown. Similarly, its FY23 core net profit grew by 7% underpinned by a better product mix, improved cost and operational efficiency via automation and the installation of solar panels.

QoQ, its 4QFY23 revenue also expanded by 7% driven by: (i) restocking by customers, and (ii) improved orders for the thinner gauge nano stretch film, which is considered a sustainable packaging solution. Its core net profit grew by a sharper 30%, thanks to an improved product mix with more higher-margin offering such as premium-grade stretch film (which is thinner but with stronger properties and higher stretchability) and value- added customised and printed blown film.

Outlook. We believe a more sustainable recovery in plastic packaging demand still hinges on stronger global economic rebound. Over the short term, the demand could be driven by restocking by end-users. We are also mindful of rising freight cost and potential disruptions to freight schedules if the Red Sea crisis escalates or is prolonged.

BPPLAS commissioned two new co-extrusion blown film machines in end- FY23, expanding its total nameplate capacity by 9,600 MT/year or 7% to 147,600 MT/year. These machines could produce multiple plastic products, including sugar bags, flour bags, oil bags, lamination film, shrink film and stretch hood. BPPLAS is also stepping up its efforts to improve its product mix by focusing on higher-margin products such as premium- grade stretch film and value-added blown film, which could help to mitigate cost pressures from increased labour and electricity costs.

Forecasts. We keep our FY24F earnings forecast and introduce our FY25F numbers.

Valuations. We also keep our TP of RM1.23 based on 9x FY24F PER, at a discount to the sector’s average historical forward PER of 13x, largely to reflect BPPLAS’ relatively smaller market capitalization, and thin share liquidity. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like BPPLAS for its: (i) strong foothold in the SE Asia market which is expected to remain resilient despite global economic uncertainties, (ii) strong cash flows and balance sheet (a net cash position) that will enable it to weather downturns better, and (iii) long-term capacity expansion in high-margin premium stretch film and blown film products, positioning it to capitalise on the next up-cycle. However, its short-term outlook may be weighed down by the global economic slowdown. Maintain MARKET PERFORM.

Risks to our call include: (i) a sudden surge in resin prices, (ii) reduced demand for packaging materials amidst an extended global economic downturn, and (iii) a rise in freight costs.

Source: Kenanga Research - 28 Feb 2024