BPPLAS guided for a 10% sales volume growth for FY24, driven largely by export sales of premium products such as thinner gauge nano stretch film. Its new higher-margin stretch hood product and blown film packaging product used in the F&B sector should cushion over margins amid rising costs. We maintain our forecasts, TP of RM1.42 and MARKET PERFORM call.

We came away from a post-results engagement with BPPLAS feeling reassured of its prospects. The key takeaways are as follows:

1. BPPLAS guided for a 10% increase in sales volume for FY24 (which is largely in line with our assumption), backed by rising consumer spending globally on easing inflation and interest rates. It expects higher orders from existing customers, the onboarding of new customers and higher export sales of innovative premium offerings such as nano stretch film to Europe and the US.

2. It is putting onto the market its new stretch hood product, commonly used for securing palletised items like cement and resins for outdoor storage, as the product has met quality and safety tests. The key selling points of the product is recyclability and durability.

3. It is also putting onto the market a new blown film packaging product used in the F&B sector in 4QCY24. It plans to market the product directly to domestic brand owners as this blown film product offers greater flexibility in terms of customisation (vs. stretch film) backed by state-of-the-art printing and cutting machines. This higher-margin value-added product should help to cushion higher labour and electricity costs.

Forecasts. Maintained.

Valuations. We also keep our TP of RM1.42 based on 10x FY25F PER, at a discount to the sector’s average historical forward PER of 13x, largely to reflect BPPLAS’s relatively smaller market capitalisation and thinner 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: (i) its strong foothold in the South East Asia market which is expected to remain resilient despite global economic uncertainties, and (ii) its expansion plans especially production capacity for sustainable packaging products such as nano stretch film, backed by a strong balance sheet that is in a net cash position. However, its valuations are fair after the recent run-up in its share price. Reiterate MARKET PERFORM.

Risks to our call include: (i) volatility in resin prices, (ii) reduced demand for packaging materials due to an extended global economic slowdown and (iii) a sharp rise in freight costs.

Source: Kenanga Research - 11 Jun 2024