Kenanga Research said it liked Thong Guan for its earnings stability underpinned by a more diversified product portfolio and its growth prospects.
PETALING JAYA: It’s a mixed outlook for the plastic packaging sector in the country as an expected slowdown in demand will be mitigated by better margins.
Kenanga Research, which has reiterated its “neutral” call on the sector, said plastic packaging players have put in place fairly aggressive expansion plans to take advantage of eroding competitiveness of their overseas rivals.
“On a more cautious note, we expect a less favourable demand outlook for the sector in 2023 on the back of a slowing global economy,” Kenanga Research told clients in a report.
However, this would be partially mitigated by the easing of the labour shortage situation resulting in better productivity and efficiency gains, and improved margins as high-cost resin inventory is gradually depleted, the research house pointed out.
Its top sector pick is Thong Guan Industries Bhd
on which it has a target price of RM3.28.
In the report, the research house citing information from market researcher Mordor Intelligence, said global plastic packaging market may grow at a compounded annual growth rate of 3.5% in 2022-2027.
“We believe local players could grow at a significantly higher rate as they gain market share from overseas producers that are losing competitiveness due to rising production cost. This has even morphed into production curbs in Europe due to high energy costs or energy supply shortages and constraints after the Russia- Ukraine war broke out.
“The plastic packaging players under our coverage have put in place fairly aggressive expansion plans to take advantage of the situation,” it added.
A more cautious outlook was expected on the back of a slowing global economy, while supply-chain disruptions will continue to linger, affecting the operations of end-users, and hence their demand for plastic packaging.
“We expect a soft patch especially in the first half of 2023,” it said.
It liked Thong Guan for its earnings stability underpinned by a more diversified product portfolio, and its growth prospects backed by capacity expansion for its premium products like nano stretch films, courier bags, food wraps and industrial bags such as wicketed bags, as well as oil, flour and sugar bags.
