BPPLAS: Earnings Miss Expectations on Revenue Decline, But Long-Term Strengths Underpin Buy Call

The latest financial results reveal a significant downturn in performance, with net profit for the second quarter of fiscal year 2025 plummeting 89.3% year-on-year to RM0.9 million. This brings the cumulative net profit for the first six months of FY25 to RM5.4 million, which significantly missed both analysts’ and consensus expectations, accounting for only 19.3% and 18.4% of full-year estimates, respectively.

Performance Review

The substantial drop in profitability was primarily driven by lower revenue, which fell 16.8% year-on-year to RM100.6 million in 2QFY25. Export market revenue was particularly affected, declining 24.3% year-on-year to RM67.7 million. The decline in revenue was attributed to softer demand amidst challenging global economic conditions and the strengthening of the local currency.

Further exacerbating the profit contraction was significant margin compression. The company faced lower selling prices due to intense competition and was impacted by unfavourable foreign exchange movements. The pre-tax profit margin consequently dropped to a mere 1.0% in 2QFY25, a stark contrast to 8.1% in the corresponding quarter of the previous year.

Future Outlook and Investment View

The operating environment for the flexible plastic packaging industry remains challenging, characterized by global uncertainties, elevated costs, and supply-demand imbalances. Despite these headwinds, the Group expresses confidence in the long-term, steady, and growing demand for flexible packaging products and its ability to defend profitability.

The company is noted for its strong financial position, being debt-free with total cash reserves of RM57.2 million. This robust balance sheet is expected to enable the company to navigate economic uncertainties and capitalize on the next demand cycle effectively.

While PublicInvest Research has ceased coverage, noting its last recommendation was Neutral with a target price of RM1.00 due to factors including a lack of investor interest, TA SECURITIES has recently issued a BUY recommendation. This new call comes with a target price of RM0.25, representing a potential upside of 25.0% from the last traded price of RM0.20. The positive stance from TA SECURITIES likely reflects confidence in the company’s long-term resilience, supported by its robust, debt-free capital structure and significant cash reserves, which position it to capitalize on future demand cycles despite the current challenging market conditions and recent earnings miss.