BP Plastics Holding Bhd
INVESTOR interest in the plastics manufacturing sector has picked up quite a bit in recent months, thanks to the weakening ringgit, falling raw material costs and signs of nascent global economic recovery led by the US.

BPP (Fundamental: 2.05/3, Valuation: 1.4/3) specialises in stretch and shrink films, an increasingly popular option for pallet stabilisation during warehousing and transportation of goods.

With a combined annual capacity (stretch film and packaging bags) of nearly 60,000 metric tonnes, the company is one of the top three stretch film manufacturers in Malaysia.  BPP’s track record has been patchy. Whilst the company has maintained topline sales growth by increasing export — which has grown from about 65% of sales in 2010 to 78% in 2014 — margins have been declining, due to fluctuating raw material prices and the ringgit as well as competition. Positively, some of these key variables are turning now in its favour. 

For 2014, revenue increased by 17.8% to RM284.0 million on higher demand in the export market although net profit was flattish due to higher utility and labour costs. In the latest 4Q2014 though, margins saw an encouraging uptick — which should improve further when the effects of lower input costs (closely correlated to oil) and strengthening US$ kick in. 

The stock is trading at a trailing 12-month P/E of 16.2 times and 1.05 times book value. These should narrow as earnings growth gains traction this year. To cater for higher export demand and enhance cost-competitiveness, BPP is investing RM13 million in a new stretch film machine, which will be operational by mid-2015. 

We also like BPP for its higher-than-market average yields — totalling 6 sen per share in 2014, equivalent to an attractive yield of 6.8%.

It has a strong debt-free balance sheet with net cash of RM37.8 million as at end-December 2014.

This article first appeared in The Edge Financial Daily, on April 10, 2015.