BP Plastics Holding Berhad (BPPLAS) reported a sequentially stronger 2QFY24 net profit of RM8.6m (+13.4% QoQ) on sustained demand and lower effective tax rate. Cumulative 1HFY24 net profit of RM16.2m is broadly within our and consensus estimates, accounting for 39.4% and 45.2% of full-year estimates, respectively. We maintain our estimates, with expectations of demand continue to improve driven by rebound in global trade while costs remain under control. A second interim dividend of 1.5 sen per share was declared, bringing YTD dividend to 3.0 sen per share (6MFY23: 3.0 sen per share). We maintain our Neutral rating on BPPLAS with an unchanged TP of RM1.62.

• 2QFY24 revenue rose to RM120.9m (+9.8% YoY) driven by higher consumer demand for plastic packaging products despite supply chain disruptions. Revenue from the export market increased by 14.5% YoY to RM89.4m, attributed to improved global economic activities. However, this was partly negated by weaker sales from domestic market (-1.9% YoY) due to severe competition.

• 2QFY24 net profit improved by 13.4% QoQ to RM8.6m on sustained demand and lower effective tax rate but dropped by 12.9% YoY due to higher production cost. Pre-tax profit (PBT) margin improved marginally to RM7.3% from 7.2% in 1QFY24 despite supply chain disruption, imposition of service tax on logistic services and an increase in the newly revised service tax rate from 6% to 8%.

• Outlook for the flexible plastic packaging industry remains challenging due to global economic uncertainties, elevated costs, and supply demand imbalance. However, there are indications of a gradual improvement in the operating environment, as we anticipate a gradual recovery in demand in coming quarters. Headline inflation appears to be easing, and Malaysia’s export growth is expected to continue through 2024, after growing at the fastest pace in 21 months in July. Additionally, the Group’s newly developed premium grade Machine Rolls are successfully gaining traction in the US and European market, though contribution is still minimal at this juncture.

Source: PublicInvest Research - 28 Aug 2024