PETALING JAYA: The plastic packaging sector should see improving orders in the near term as customers replenish their inventories, according to Kenanga Research.
The customers are likely to stock up in anticipation of price hikes following the uptrend in the price of input resin in recent months, according to the research house.
However, it is “neutral” on the sector as a sustained recovery would hinge on an improving global economic outlook.
The research house pointed out that key central bankers have yet to depart from their hawkish policy stance, coupled with anticipated higher energy costs as the government cuts back on fuel subsidies to industries.
This is because they opted out from the Green Electricity Tariff programme in August following the upwards revision of the GET rate to 21.8 sen/kWh from 3.7 sen/kWh.
They are now subject to the common imbalance cost pass-through surcharge of 17 sen/kWh.
To mitigate the higher electricity cost, they are investing in photovoltaic systems to partially insource electricity, which will also reduce their carbon footprint.
Meanwhile, the research house added that local plastic packaging players should be able to grow at a quicker pace as they stand to benefit from overseas producers that are losing competitiveness due to rising costs.
For example, Berry Global, a prominent US-based plastic packaging manufacturer, has cut capacity, closing at least 20 plants this year.
Kenanga Research added that local plastic packaging players are moving aggressively into the production of sustainable packaging materials in response to the growing demand for high-performance but recyclable packaging solutions.
Its sector top pick is Thong Guan Industries Bhd, with a target price of RM3.05 due to its earnings stability, underpinned by a more diversified product portfolio and steadily growing clientele base.
Thong Guan’s aggressive push into the European and US markets with environmentally-friendly products, as well as its expansion plans for premium products, such as nano stretch films, courier bags, food wraps and some industrial bags augured well for its growth.