KUALA LUMPUR (July 12): Kenanga Research began coverage of BP Plastics Holding Bhd (BPPLAS) today with a “outperform” rating and an RM2.50 target price. The target price of RM2.50 is a 50% increase over the current stock price of RM1.67. BPPLAS is a buy, according to the research firm, because of strong demand from export and domestic markets, as well as catalysts for near- and long-term margin increases. The company is a producer of polyethylene (PE) films in Asia.
BPPLAS is particularly liked by Kenanga Research because of its strong 5.4 percent dividend yield, which is higher than the industry average of 2.5 percent.
“BPPLAS has a good net cash position, which, when combined with its ability to generate substantial cash flows on a consistent basis, allows for further dividend payouts. From 2016 to 2020, BPPLAS has continuously paid dividends of 4.0-8.0 sen per share, with a payout ratio of more than 50% of net income. As a result, we believe BPPLAS will continue to pay at least 8.0 sen in dividends in FY21. For both FY21 and FY22, we forecast DPS of 9.0 sen, or 5.5 percent yields “rcent,” it went on to say.
According to Kenanga Research, the company’s net profits for FY21 and FY22 will be RM36.1 million (+22.4 percent y-o-y) and RM39.4 million (+9 percent y-o-y), respectively.
“BPPLAS saw a higher increase in sales volume in 1QFY21 (+13 percent q-o-q) than in 4QFY20 (+2.8 percent q-o-q), owing to orders from established clients in both export and domestic markets. BPPLAS, on the other hand, is gaining market share from its competitors. We understand that BPPLAS can accommodate extra orders from clients with an average utilization rate of 75%, which is close to 80%, after which BPPLAS will expand capacity to continue catering to the extra requests “”Strong demand,” it stated.
The primary risks, according to Kenanga Research, include raw material volatility, labor scarcity threats, and foreign currency risk.
Despite this, the research firm believes BPPLAS is “grossly undervalued” due to strong demand growth from export and domestic markets, a healthy balance sheet with cash per share of 41 sen (as of March 2021), the company’s capacity to pass on higher resin costs, and a higher margin product mix./n
