BP Plastics Holding Bhd's (BPPLAS) barely broke even in 3QFY24, despite higher revenue, mainly due to higher production costs and an unfavourable foreign exchange (forex) position arising from the significant strengthening of Ringgit Malaysia. The cumulative 9MFY24 net profit of RM16.9m fell below both our estimates and consensus expectations, accounting for only 45.3% and 45.6% of full-year estimates, respectively. We cut our FY24-26F forecast by an average of 21.3%, reflecting intensified competition, higher operating costs, and market uncertainties. Consequently, our TP is revised to RM1.23, based on 10x FY25F EPS, reflecting weaker industry dynamics. Our Neutral call maintained. On a side note, BPPLAS declared a third interim dividend of 1.5sen, bringing the YTD dividend declared to 4.5sen (9MFY23: 4.5sen).

• 3QFY24 revenue increased by 6.6% YoY to RM125.0m. The marginal growth in revenue was mainly due to sustained demand from export markets across Asian countries, which grew 16.1% YoY to RM72.4m. This was partly offset by lower revenue in the Malaysia and others market, which declined YoY by 5.0% and 2.9%, respectively.
• 3QFY24 net profit plunged by 90.0% YoY to RM0.7m, primarily due to higher production costs and forex losses stemming from the significant strengthening of Ringgit Malaysia. Profit before tax (PBT) margin dropped sharply to 0.4%, compared to 7.2% in 3QFY23. The Group incurred a realised forex loss of RM4.1m during the quarter. However, a reversal may occur in the coming quarter, driven by more favourable forex movements.
• Outlook for the flexible plastic packaging industry remains challenging, given global economic uncertainties, elevated costs, and supply-demand imbalances. However, the Group remains optimistic about the sustained and growing demand for flexible packaging products as global economic activity continues to improve. We also take note that the Group is well-positioned to weather economic uncertainties, given its debt-free capital structure and total cash reserves of RM49.7m, which enable it to capitalise on the next demand upcycle.

Source: PublicInvest Research - 27 Nov 2024