BPPlas ... Nov11

Inet Research

1. Recent Developments
- BPPlas’ latest 4th cast stretch film line is progressively being shipped and installed with first trial of production expected towards end- Dec 2011. This line is dedicated to cater to rising demand for thin gauge stretch film.

- The full impact of this line will be felt in FY12. Upon full commissioning, the production capacity of stretch film will be increased by about 19% to 51,600 mt from 43,200 mt. With the production capacity of blown lines remaining at 16,800 mt, BPPlas’ total capacity will increase to 68,400 mt from 60,000 mt.

- In addition, BPPlas is also in the midst of constructing a new factory together with sub-station and silos
to streamline its operations. The total capex for FY11 would amount to RM14m. The company does not
plan for capacity increase in FY12. The plan is to increase production efficiency. Hence, its capex for
FY12 should normalise to around RM3m.

- In 1HFY11, its sales volumes grew by 6-8%. However, BPPlas is likely to record lower yoy sales
volume and turnover in 3QFY11 due to the reduced manufacturing activities arising from the impact of
Japan’s tsunami and global economic uncertainty. In FY10, sales to Japan accounted for 16% of group
turnover. However, we expect turnover to stage a recovery in 4QFY11 due to seasonal factor.

- In terms of US$ exposure, export sales, pre-dominantly transacted in US$, accounted for about 65% of
group turnover. There is some form of natural hedging as the purchases of resin and procurement of
machines are also denominated in US$. BPPlas has taken a US$ loan equivalent to RM7.9m, which was
reflected in its balance sheet as at end-2QFY11, to hedge its trade receivables over the short-term.

-  Profitability will still be adversely affected by high resin costs which averaged around US$1,400/mt in
3QFY11 as compared with the average of US$1,200 in 3QFY10. Due to the cost pass-through
arrangement with customers on a time lag basis, the rising and high resin prices will continue to exert
pressure on profit margins over the short-term. Over the medium-term, plastic resin prices are expected
to move downwards due to the huge petrochemical capacities that will come on stream from 2011
onwards and new capacities from the Middle East, which have a substantially lower feedstock cost
advantage.

- There is no new update to its venture into rubber plantation in Cambodia. To recap, BPPlas is in the
midst of applying for economic concession rights to 10,000 ha of land in Mondulkiri Province, Cambodia
via Mr. Channarith Saram for a process fee of US$2.8m. Subsequently, BPPlas has signed a LOI with
Kosmo Tropika Sdn. Bhd to establish a joint venture to undertake the business of rubber plantation in
Cambodia upon successful application of its concession rights. We have not factored in any contribution
from this new business.

2. Earnings Outlook
- We have slashed our earnings projection by 10-14% for FY11 and FY12 to factor in the slower demand
and higher resin costs.

- The demand for plastic film products is currently facing some headwinds arising from the slower global
economy. However, the long-term demand of stretch film remains favourable due to demand from a wide
range of industries and substitution advantage against other forms of pallet stabilisation. According to
Applied Market Information Ltd. (AMI), global demand for pallet stretch films is expected to grow by
more than 25% (or 800,000 tonnes) by 2015 from the current global demand of 3.3m tonnes/year, with
Asia leading the charge. About 45% (360,000 tonnes) of the projected increase in demand will be in Asia.

3. Valuation and Recommendation
- We are still maintaining our Buy recommendation for its undemanding valuations. Its net cash position of
RM58.2m already made up of 55% of its market capitalisation. It’s also trading at a 26% discount to its
NTA of RM0.80/share.

- Based on our EPS and dividend forecast of 10.4 sen and 4 sen for FY12, the stock is currently trading at
P/E and dividend yield of 5.7x and 6.8% respectively. We have arrived at a price target of RM0.94 based
on our target P/E of 9x for FY12.