PP 7767/09/2010(025354)

Malaysia
25 May 2010
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M
MARKET DATELINE
R e su l ts N o t e 25 May 2010

Share Price : RM0.62

BP Plastics Fair Value
Recom
:
:
RM0.80
Outperform
Within Expectations (Maintained)

Table 1 : Investment Statistics (BPPLAS; Code: 5100) Bloomberg: BPP MK

Net Net Net
FYE Turnover profit EPS # Growth # PER # C.EPS* P/CF P/NTA Gearing ROE DY
Dec (RMm) (RMm) (sen) (%) (x) (Sen) (x) (x) (x) (%) (%)
2009 (a) 175.2 15.6 8.7 31.9 7.1 - 5.1 0.8 Net Cash 11.9 4.8
2010 (f) 230.6 18.1 10.0 15.7 6.2 10.0 3.9 0.8 Net Cash 12.5 4.9
2011 (f) 247.8 19.7 10.9 8.9 5.7 11.0 3.2 0.7 Net Cash 12.5 5.3
2012 (f) 262.4 21.4 11.9 8.7 5.2 12.0 2.9 0.7 Net Cash 12.5 5.8
# Adjusted EPS
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Within expectations. BP Plastics (BPP) 1Q12/10 net profit of RM3.6m (- RHBRI Vs. Consensus
Above
10.8% qoq; +20% yoy) accounted for 20% of our and consensus full-
In Line
year forecast respectively. We consider this to be within our expectations Below
as 1Q is typically a slower period and we expect stronger earnings in the
coming quarters as a result of the economic recovery. Issued Capital (m shares) 180.1
Market Cap (RMm) 111.7
♦ Qoq, revenue grew 3.3% qoq mainly due to the increase in average Daily Trading Vol (m shs) 0.07
selling prices in order to pass on the higher raw material prices to 52wk Price Range (RM) 0.31-0.69
customers. Consequently, EBIT margin was flat qoq. However, due to a Major Shareholders (%)
higher effective tax rate of 23.6% vs. 2.6% in 4Q09 (due to tax LG Capital Sdn. Bhd 45.0
Lim Chun Yow 5.92
incentives given to a subsidiary), net profit was down 11% qoq.
Hey Shiow Hoe 5.92
♦ Outlook. Going forward, we expect BPP earnings to improve mainly Tan See Khim 5.92

driven by: 1) stronger demand on the back of improving economic

conditions, which was reflected by the qoq and yoy increase in 1Q10 FYE Dec FY10 FY11 FY12
revenue; 2) its ability to undertake a cost pass through albeit less than EPS chg (%) - - -
Var to Cons (%) - -0.91 -0.83
100%; 3) potential additional supply of resins from the GCC, which will
help cushion the raw materials price increase; and 4) its efficient cost PE Band Chart
management.
PER = 9x
♦ Capex. Management expects to spend around RM2m on capex which will PER = 7x
PER = 5x
be used to purchase additional machinery as well as capacity expansion.
We understand management is acquiring high-technology equipment to
recycle resin by-products, which may lead to lower costs of raw materials
going forward.

♦ Risks. The risks include: 1) sharp surge in resins price, which will result
Relative Performance To FBM KLCI
in margin squeeze given less than 100% pass through; 2) lower-than-
expected demand; and 3) foreign exchange risk from export sales.

♦ Forecasts. Maintained. BP Plastics

♦ Investment case. Given that demand for stretch film (which are FBM KLCI
supplied to overseas distributors for warehouse and logistics distribution
centres) are recovering as well as the inelastic demand for most blown
products (which are sold to packaging converters as well as food and
Coverage Under CMDF-Bursa
beverage industries), we believe BPP will enjoy rising volumes ahead. We
Research Scheme
also take comfort from its healthy balance sheet with net cash per share
and NTA/share of 24sen and 75sen respectively as at end-1Q10. We David Chong, CFA
maintain our fair value of RM0.80 (based on unchanged 8x FY12/10 EPS (603) 92802166
which is in line with its 3-year average PE). Maintain Outperform. david.chong@rhb.com.my

Please read important disclosures at the end of this report.

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 25 May 2010

Table 2: Quarterly Results

FYE Dec (RMm) 1Q09 4Q09 1Q10 Qoq Yoy Comments
(%) (%)
Revenue 34.5 50.4 52.1 3.3 51.1 Higher yoy due to higher sales volume following improved
demand from local and overseas markets.
EBIT 4.0 4.0 4.2 4.2 5.4
Net interest 0.1 0.1 0.5 +>100 +>100 BPP remained in a net cash position of 24sen/share as at
income end 1Q10 vs. 19sen/share as at 4Q09 and 1Q09
respectively.
Pretax Profit 4.0 4.1 4.7 13.6 15.7
Taxation (1.1) (0.1) (1.1) +>100 3.8
Net Profit 3.0 4.0 3.6 (10.9) 20.0

EBIT Margin (%) 11.5 8.0 8.0 We believe yoy contraction in EBIT margin was due to
higher raw material prices.
Pre-tax Margin 11.7 8.1 8.9
(%)
Net Margin (%) 8.6 7.9 6.8
Effective tax rate 26.4 2.6 23.6 Lower than statutory tax rate due to tax incentives given
to subsidiary.
Source: Company

Table 3: Earnings Forecasts Table 4: Forecasts Assumptions

FYE Dec (RMm) 2009 2010f 2011f 2012f FYE Dec 2010f 2011f 2012f

Turnover 175.2 230.6 247.8 262.4 Installed capacity (tonnes) 60,000 60,000 60,000
Growth (%) (25.0) 31.6 7.5 5.9 Avg utilisation rate (%) 60.0 62.0 65.0
Source: RHBRI estimates
EBIT 19.0 22.1 23.9 25.8
EBIT margin (%) 10.8 9.6 9.7 9.9
Net interest expense 0.5 0.5 0.7 0.9

Pretax Profit 19.5 22.6 24.6 26.8

Tax (3.9) (4.5) (4.9) (5.4)
Net Profit 15.6 18.1 19.7 21.4
Source: Company, RHBRI estimates

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IMPORTANT DISCLOSURES

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differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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