In this article, you will get all information regarding Plastic And Packaging Sector Faces A Slowdown

The 4QCY22 results of plastic packaging players under coverage came largely within expectations (75% within with the remaining 25% below our forecasts) which was an improvement over the preceding quarter (25% beat but 75% disappointed). Generally, players’ top lines contracted due to weaker sales volumes on the back of the slowdown in the global economy. Certain players were impacted by margin erosion due to escalating operating costs, particularly, input and staff costs. However, TGUAN was able to defend its margins by focusing on high-margin products and improving operational efficiency via automation amidst labour shortage.

The demand outlook for the plastic packaging sector in 2023 is not favourable in the first half of the year due to slower global economic growth and lingering supply chain disruptions affecting end-users operations and hence the demand for plastic packaging. Kenanga said it foresees a moderate utilization rate of 50%-65% across the board in the first half despite the labour shortage issue being partially resolved.

Despite the soft patch in 1HFY23, the investment house expects margins to sustain driven by: (i) the ongoing positioning by players towards higher margin products, and (ii) the declining cost of input resin. Meanwhile, the impact of the recent hike in electricity tariff is manageable, as typically electricity only makes up 4%-6% of the total production cost of plastic packaging players. Also helping, is the Green Electricity Tariff (GET) programme of TENAGA (MP; TP: RM9.64) that offers an exemption to Imbalance Cost Pass-Through (ICPT) surcharge of 20 sen/kWh via a subscription charge of 3.7 sen/kWh (resulting in an effective savings of 16.3 sen/kWh).

However, this offer to buy renewable energy is capped at 30% of total electricity consumption, subject to the availability of quota and only valid for six months ending 31 Jun 2023 for now. TGUAN, BPPLAS (MP; TP: RM1.23) and SCIENTX
(UP; TP: RM2.99) have signed up for the programme

Sector top pick is TGUAN for its earnings stability underpinned by a more diversified product portfolio, its earnings growth prospects underpinned by expansion in production capacity for premium products such as nano stretch films and courier bags, and deeper penetration into the Europe and US markets, and its product innovation via R&D and collaboration with the likes of ExxonMobil to produce more environmentally-friendly products.

Plastic And Packaging Sector Faces A Slowdown

For more visit

Latest News by