Product innovation drives sales of local plastic packaging

An example of nano stretch film produced by Thong Guan

KUALA LUMPUR: The adoption of new product innovations is giving local plastic packaging manufacturers an edge over their global peers as they vie for market share amid a period of inventory restocking.

Two new products - nano stretch film and mono film - are gaining traction on the market, says Kenanga Research, as they offer a more attractive proposition in terms of sustainability.

"Nano stretch film is known for its thinner yet stronger properties that enable customers to reduce film consumption without compromising on load stability; while mono film is a fully recyclable film made up of a single type of plastic resin," said the research firm in its sector update.

Kenaga has turned more bullish on the plastic packaging sector, raising it to "overweight" from "neutral" amid expectations of increased order flow.

According to Kenanga, local players have guided for more customer orders over the immediate term as they restock ahead of price hikes stemming from rising resin prices and an overwhelming response to sustainable packaging materials.

"The upward momentum in sales should sustain into 2H24 on the recovery of manufacturing activities and consumer spending globally," it added.

Among the local producers, SLP Resources Bhd has been seeing more customer orders for its mono film, particularly in the Asean region as customers lean towards sustainable packaging.

Also fuelling this demand is stricter packaging waste regulations in Europe and Vietnam.

Kenanga noted that other companies have strategically expanded their capacity in high-margin premium strech film and blown fulm products in recent years.

"Thong Guan Industries Bhd, for instance, commissioned its ninth nano stretch film line in FY23, whereas BP Plastics Bhd also introduced its ninth and 10th cast stretch film machines in December 2021 and December 2022, respectively.

The research firm noted that the two machines marked BP Plastics' initial foray into nano stretch film production.

Kenanga expects such long-term capacity expansion to reposition the players favourably to further capitalise on the ongoing post-pandemic economic recovery. "The increased production flexibility and capabilities should translate into more orders," it said.

On a cautionary note, Kenanga warned of downside risk to producer margins due to increasing operating costs, including from labour and electricity as we as rising freight costs amid the escalating Red Sea conflict.

This is where a shift towards premium products could potentially mitigate the negative impact on profits, it said.

Kenanga's top sector picks are Thong Guan and BP Plastics, both "outperform" recommendations with target prices of RM1.96 and RM1.42 respectively. It has an "outperform" on SLP Resources with a target price of RM1.06 and "market perform" on Scientex Bhd with a target price of RM3.68

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