PETALING JAYA: BP Plastics Holding Bhd is likely to enjoy sustained recovery, given its strong presence in South-East Asia, which is expected to remain resilient despite global economic uncertainties.
Kenanga Research likes BP Plastics for its strong cash flow and balance sheet, which has a net cash position, and long-term capacity expansion in high-margin premium stretch film and blown film products.
According to the research firm, BP Plastics believes a robust air travel market will translate to higher demand for plastic packaging used for transportation and storage purposes.
“BP Plastics guided for the pickup in demand for plastic packaging from the second half of 2023 (2H23) to sustain for the rest of financial year ending Dec 31, 2024 (FY24) and into FY25.
“For FY24, BP Plastics is targeting sales volumes to grow by 8% to 10% year-on-year by both domestic and overseas buyers,” it said.
Kenanga Research added that the company’s revenue growth will also be driven by higher sales of premium products including thinner gauge stretch film for more sustainable packaging market and technical customised blown film.
“We believe BP Plastics’ nano stretch film has a strong competitive edge in the US and European markets, given the high cost structure, particularly, energy cost of the local producers there,” it explained.
It said BP Plastics planned to put aside RM35mil as capital expenditure in FY24 for the purchase of new printing and cutting machines, additional solar panels to reduce electricity cost and upgrading of the power supply system at its plant.
Kenanga Research, which has upgraded the counter to “outperform” from “market perform”, raised its FY24 and FY25 earnings forecasts by 4% and 3%, respectively, on the back of better selling product mix and improving margins.
It lifted its target price by 16% to RM1.42 from RM1.23 previously, mainly due to increased price-earnings multiple of 10 times from nine times, considering the higher growth potential associated with its high-margin premium stretch film and blown film products.
“Our 10-time valuation remains at a discount to the sector’s average historical forward price-earnings ratio of 13 times, largely to reflect BP Plastics’ relatively smaller market capitalisation and thin share liquidity,” it added.