BP Plastics topped peers on ROE and ROA, says PublicInvest Research
KUALA LUMPUR (June 30): PublicInvest Research has initiated coverage of polyethylene plastics films and bag manufacturer BP Plastics Holdings Bhd and said the company’s return on equity (ROE) and return on assets (ROA) stood at 20% and 14.7% respectively, compared to its peer averages of 14.3% and 8.4% respectively.
PublicInvest said the Johor-based company’s solid ROE and ROA are attributed to its cost-rationalisation measures, coordinated pricing strategies and continuous upgrade of machinery and equipment.
“These have enabled the group to withstand competitive pricing pressures within the industry,” the research firm wrote in a note on Thursday (June 30).
In a peer comparison chart, BP Plastics was compared to Scientex Bhd, Thong Guan Industries Bhd, SCGM Bhd and SLP Resources Bhd.
“We initiate coverage of BP Plastics with a target price of RM1.40 based on a price-earnings ratio multiple of 13 times pegged at its financial year ending Dec 31, 2023 forecast (FY23F) earnings per share, though with a ‘neutral’ call given limited share price upside. [Its] prospective dividend yield [is] at 3.9%,” added PublicInvest.
PublicInvest stated that it likes BP Plastics for its steady growth, superior operational efficiencies and attractive dividends sustained by its healthy balance sheet.
“BP Plastics has registered steady revenue and earnings growth at compound annual growth rates of 6.6% and 7.1% respectively since its listing on Bursa Malaysia in 2005.
“Despite the challenging economic environment resulting from the Covid-19 pandemic, the group has managed to deliver a commendable financial performance for FY20 and FY21,” said PublicInvest.
It also highlighted that BP Plastics had consistently declared and paid dividends to its shareholders over the past five years with an average payout ratio of 52.7%, slightly higher than its dividend policy of distributing a minimum 40% of profit after tax to shareholders.
However, PublicInvest is wary of the local producer’s profit margin ahead with the impact of the surge in commodity prices due to rising crude oil prices caused by global supply chain disruptions and uncertainties from the Ukraine-Russia war.
“While the group’s revenue is expected to trend higher on the back of capacity expansion and elevated average selling prices supported by robust demand for packaging films, the surge in production cost mainly due to rising material and freight cost is likely to weigh on its profit margin moving forward,” PublicInvest said.
At 10.49am, BP Plastics shares had increased one sen or 0.79% to RM1.28, bringing the company a market capitalisation of about RM360.36 million.