KUALA LUMPUR: Global economic vagaries and petrochemical prices are expected to slow down BP Plastics Holding Bhd's financial year 2022 (FY22) to FY24 earning per share (EPS) growth, said CGS-CIMB Research.
The research house has projected that the spike in petrochemical prices in the first half of 2022 (1H22) would also pull down BP Plastics' record net profit in FY21.
The firm expects BP Plastics' FY22 net profit to decline by 19.8 per cent year-on-year (YoY) despite a 14.5 per cent YoY rise in turnover, as its margins would be affected by higher polyethylene (PE) prices.
"Although it is growing its capacity by end-FY22, we expect its sales volume growth to be muted in FY23-FY24 due to the slowdown in the global economy.
"With that, FY23-FY24 EPS would rise by only 3.1-6.8 per cent YoY, and its FY24 EPS would be 11.7 per cent lower than FY21's, in our view," it said.
However, CGS-CIMB said a strong point for BP Plastics was its foresight to produce environmentally sustainable flexible stretch films.
The firm said the financial and strategic benefits of pivoting to sustainable thinner stretch films were allowing BP Plastics to raise its value and margins and avoid engaging in a price war with smaller stretch film producers.
"This will also help the company to effectively raise barriers to entry with technological innovation and increase its profile among customers that need to comply with environmental, social and governance requirements," it said.
With the sales boom in FY21, CGS-CIMB said BP Plastics' share price jumped 60.4 per cent YoY in 2021.
"This prompts us to recommend a Hold on BP Plastics with a target price of RM 1.61 as we initiate our coverage on the stock.
"The stock offers a generous 2022-24 dividend yield of 4–5.4 per cent - the highest in the plastic sector. This justifies the premium valuation, in our view," it added.