Plastic producers continue to prosper
05 Jul 2024
Plastic packaging players in Malaysia are expected to see sustained order growth in the second half of 2024.
This positive outlook is supported by the recovery in manufacturing activity and consumer spending globally, following the restocking by customers during the early part of the year.
Kenanga Research said in a report, the long-term outlook for local plastic packaging companies is also optimistic, as they are poised to gain market share from overseas producers, given local player’s low-cost structure, better economies of scale and product innovation, especially in sustainable plastic packaging material.
The research house has maintained its “overweight” call on the plastic-packaging sector.
“Having experienced a pick-up in orders since the beginning of the year on restocking by stockists and end-users, local players guided for the uptrend to be sustained during the remainder of 2024, backed by the recovery in manufacturing and consumer spending globally,” it said.
“Plastic packaging is widely used across sectors from food and beverage to trading and logistics, and, hence, demand for it hinges on the health of the global economy,” it added.
Citing a report by consutancy KPMG, Kenanga Research said consumption of plastic packaging is expected to register a compound annual growth rate of 5% over the next three to five years.
“We believe local players could grow at a faster pace through gaining market share from overseas producers due to local producers having lower input, land, labour and energy costs; their better economies of scale, given that Malaysian producers of plastic packaging have significantly grown in size over the past decade; and product innovation such as the more environmentally friendly nano stretch film and mono film,” the research house explained.
Kenanga Research noted that local plastic packaging companies will also see tremendous opportunities in South-East Asia.
“The demand for plastic packaging in the region is rising amid a manufacturing renaissance as multinational companies diversify away from China for various reasons such as rising costs and supply-chain de-risking,” it said.
Kenanga Research pointed out that SLP Resources Bhd is aggressively marketing its fully recyclable mono film in Asean countries.
It added that some companies had ventured into higher-margin niche products to enhance their profitability, citing BP Plastics Holdings Bhd as an example, with the company releasing a new blown-film packaging product made with state-of-the-art printing and cutting machinery for use in the food and beverage sector.
Separately, Thong Guan Industries Bhd had tied up with ExxonMobil to produce a new thinner, lighter stretch-hood film that enhances logistics efficiency without compromising on stability, the research house said.
“We acknowledge potential downside risks to margins due to increasing operating costs, including labour and electricity; and rising freight costs on shipping diversion from the Red Sea,” Kenanga Research said.
“However, a shift towards high-margin premium products, increased automation and investment in solar energy could partially mitigate these cost pressures,” the research house added.
Kenanga Research named Thong Guan as its top sector pick for the company’s earnings growth prospects, underpinned by expansion plans for premium products, such as nano-stretch films, food wraps and some industrial bags; its aggressive push into the European and US markets with high-performing products; and its product innovation via research and development, and collaboration with the likes of ExxonMobil to produce more environmentally-friendly products.
Source: The Star
