Summary

• BP Plastics Holding Bhd’s (BPPLAS) 4Q22 core net profit fell 54.2% YoY to RM5.5m, bringing the FY22 core net profit to RM30.5m (-34.3% vs. 12M21). The results came in within expectations, amounting to 100.0% of our full year forecast at RM30.5m. Meanwhile, an interim dividend of 1.5 sen per share, payable on 7th April 2023 was declared.

• YoY, core net profit dropped 54.2% in line with the lower revenue due to weaker demand arising from global uncertainties. Meanwhile, higher production and overhead costs such as electricity, packaging accessories, and salary arising from inflation has led to a margin compression from 9.5% to 4.9%.

• QoQ, core net profit improved 1.9%, mainly due to lower effective tax rate arising from overprovision. Revenue, however, declined 8.5% QoQ to RM110.4m primarily resulted from lower average selling price (ASP) on the back of declining resin prices.

• While market cycle has been establishing a long trough floor, resin price continued to see consolidation in 4Q22. Market was hit by massive oversupply due to uninspiring demand environment. Nevertheless, we expect spot resin activity to gradually pick up in FY23, but demand may remain slow at least for 1H23.

• Production wise, capacity increased from 10kMT per month (120kMT p.a.) to 11.5kMT per month (138kMT p.a.) following the commissioning of the 10th Cast Stretch Film machine in end-FY22 as per scheduled. Utilisation rate, however, was lower YoY, hovering around 50.0-55.0% due to softened demand. Nevertheless, BPPLAS sticked to its plan to commission two Blown PE films machine by endFY23, which is expected to boost its production capacity to 12.2kMT per month (146.4kMT p.a.). The investment will be backed by BPPLAS’s net cash position stood at RM60.9m as at 4Q22; net cash per share booked at 21.6 sen.

• Moving forward, operating environment will remain challenging amid global inflation as well as the ongoing conflict in Russia and Ukraine. Nevertheless, China’s reopening of border earlier is likely to cushion the softening global demand. The group will focus on supply chain, cost management, and new market expansion.

Valuation & Recommendation

• As the core net profit came in in line with our expectations, we made no change to our FY23f earnings forecast at RM26.4m. Meanwhile, FY24f earnings forecast is introduced at RM28.5m. The core net profit forecast will take into account the(i) softer global demand for plastic packaging products, (ii) declined margin resulted from lower ASP and rising production cost, as well as (iii) the commissioning of two Blown PE films machine in FY23.

• We maintained our HOLD recommendation on BPPLAS, with an unchanged target price of RM1.32. The target price is derived by ascribing a target PER of 14.0x to its FY23f EPS of 9.4 sen.

• Risks to our recommendation include a potential increase in production costs in the inflationary environment. Any delay in passing through the rising production cost may hamper the group’s margin. Besides, the group is exposed to foreign currency risk on transactions denominated in currencies such as USD, SGD, and EUR.

Source: Mplus Research - 28 Feb 2023