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BP Plastics seeks more sales in Asean

By Cindy Yeap

Fifteen years ago, Main Board-bound BP Plastics Bhd was Lam Guan Plastics, a cottage plastic-bag maker in Batu Pahat, Johor. Today, it is one of Malaysia's largest industrial plastic packaging manufacturers, with customers in over 16 countries. The group is raising RM25.02 million in net proceeds from its floatation to fund capacity expansion in order to win more sales, especially in Asean.
It intends to spend RM7.5 million on building a new factory on a piece of leasehold land close to its existing factories in Batu Pahat, and has earmarked RM15.52 million to be spent on machinery and equipment over the next two years. The group is utilising 80% of its 36,000-tonne capacity currently.
It also plans to cross-sell other packaging services to existing customers, having invested in business intelligence solutions to improve customer service.
Separately, its three founders — Lim Chun Yow, 42; Tan See Khim, 41; and Hey Shiow Hoe, 42 — will reap RM43.20 million cash from selling 36 million of their shares in BP Plastics to bumiputera investors.
Since 2002, more than half of its turnover has come from abroad, mainly from exports of cast stretch films, which contributed 70% of last year's RM122.05 million turnover. BP Plastics' two main products are blown film (plastic bags) and cast stretch film (plastic rolls), which is the material used to machine-wrap luggage bags at airports for protection or to prevent contents from spilling, except that BP Plastics' products are for industrial use. Manufacturers use stretch plastics to "unitise" products like soda cans and bricks into larger units for easier transport by forklifts in warehouses. The material is a better alternative to conventional plastic straps.
Its major local customers include Lee Rubber Co Ltd, AT Packaging Sdn Bhd and the Ramatex Group. Its customers abroad include Mitsubishi Shoji Plastics Corp, JMP Holdings Pty Ltd (Australia), MMP Packaging Group Co Ltd (Thailand), MK Packaging Industries Pte Ltd (Singapore), Parnassian Trading Co Ltd (Taiwan), CV Weekson (Indonesia), and Signode Hong Kong Ltd.
For the higher-end plastic packaging services market, BP Plastics, like rivals Thong Guan Industries Bhd, Great Wall Plastics Industries Sdn Bhd and Klang Hock Plastics Industries Sdn Bhd, is not as affected by new entrants, says SBB Securities in a note dated Feb 16.
However, in the broader market with 455 local players involved in the bags, sacks and films industry, SBB Securities is concerned about BP Plastics' relatively small market share of 5.2% in 2003, ranking it No 10 among key players.
Increased competition from abroad, with tariff deregulation among Asean members as well as China's ability to produce similar quality products at lower cost due to cheap labour may hurt BP Plastics' future profits, says TA Securities.
Higher oil prices would also negatively impact BP Plastics' profits as the price of raw materials used by the company, like the petrochemical compound resin, are likely to rise in tandem.
TA Securities values BP Plastics at RM1.35, which is 10.5 times FY2005 price earnings ratio (PER). The 15% premium to the industry's PER of 9.1 times is because BP Plastics has better margins and zero borrowings compared with its peers such as Poly Tower, Scientex Packaging and Thong Guan, TA says.
SBB Securities has a RM1.43 target price for BP Plastics, by applying a 10% premium to rival Thong Guan's FY2005 PER of 9.32 times to BP Plastics' earnings per share (EPS) of 13.92 sen.
"BP Plastics is [also] by far the most advanced stretch film manufacturer in the country, and has a three-year EPS compound annual growth rate of 16% versus Thong Guan's 3.83%," SBB adds.