Softer Q3 seen for plastic players

Among stocks in the sector, Kenanga Research liked were SCGM, SLP, Thong Guan Industries Bhd and BP Plastics Holding Bhd.(File pic shows a worker attending to a the production machine at the SCGM plant in Kulaijaya, Jojhor.)

PETALING JAYA: Companies in the plastic and packaging industry may see earnings in the third quarter (Q3) of 2021 coming in softer quarter-on-quarter (q-o-q) as a result of the 60% workforce capacity limit imposed due to movement restrictions.

This would have likely lowered their sales volume during the quarter, said Kenanga Research.

“We estimate that the manufacturers were operating at a utilisation rate of 55% to 65% in Q3 of 2021 versus 50% to 60% in Q2,” it said in a report.

The research firm noted that in the second quarter (Q2) of 2021, apart from SLP Resources Bhd and SCGM Bhd, which performed within range, other plastic players under its coverage had exceeded the brokerage’s expectations. “Looking ahead, we expect resin prices to continue trending downwards and average selling prices (ASPs) to gradually decline, albeit at a slower rate,” it said.

Prices of resin – an important input for plastics manufacturers – have been on the downtrend since April.

There was an upturn of 2% to 10% across the board since July, but Kenanga Research said based on its channel checks, this marginal increase in resin costs is insignificant for plastic players relative to the high resin prices in March this year.

It believed that players are well-positioned to absorb the marginally higher costs without hurting their margins.

Besides this, the damages from Hurricanes Ida and Nicholas in the United States at the end of August were minimal on petrochemical productions, and hence did not materially impact resin prices.

For 2021, the brokerage is maintaining its resin price assumption of US$1,100 (RM4,600) to US$1,200 (RM5,018) per tonne, which is marginally below the year-to-date average of US$1,000 (RM4,182) to US$1,400 (RM5,854) per tonne.

According to Kenanga Research, most plastic players indicated that over 90% of their workers have been fully vaccinated, and they are back to their full workforce strength as of end-September.

“Thus, we believe that in Q4 of 2021, the plastic players will ramp up their utilisation rates from an average of 65% to 75%,” it said.

Among stocks in the sector, it liked SCGM, SLP, Thong Guan Industries Bhd and BP Plastics Holding Bhd.

These players would experience robust demand for their products and their continuous expansion of product range should fuel future earnings growth, it said.

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