Plastic packaging players anticipate sustained orders through the remainder of CY24, supported by a global recovery in manufacturing activities and consumer spending, as Kenanga Investment Bank (Kenanga) reported in its Malaysia Company Update today (4 July 2024, Thursday). They highlighted local players' advantages in cost structure and economies of scale, projecting market share gains from overseas competitors.

Kenanga maintained an OVERWEIGHT rating for the sector, identifying TGUAN as their top pick with an Outperform (OP) rating and a Target Price (TP) of RM2.86. They emphasized the sector's growth potential amidst rising global demand for plastic packaging, driven by innovation in sustainable materials and expanding market opportunities.

The OECD and KPMG forecasts underscored the sector's growth trajectory, with plastic packaging consumption projected to increase significantly over the next decade. Kenanga highlighted the local players' competitive edge in cost efficiency and product innovation, particularly in sustainable packaging solutions like nano stretch film and mono film.

Plastic packaging manufacturers reported a strong uptake in orders since the early Calendar Year (CY24), driven by restocking activities and improving global economic conditions. Despite anticipated seasonal production dips during the Second Quarter (2Q) due to Hari Raya break, sustained demand across sectors like F&B and logistics is expected to bolster sector performance.

Kenanga noted the strategic importance of international trade fairs for local players, facilitating the introduction of innovative products to global markets. Products such as nano stretch film and mono film, known for their sustainability and performance, are gaining traction, particularly in developed markets with stringent environmental regulations.

In Southeast Asia, the "manufacturing renaissance" is driving increased demand for plastic packaging, presenting growth opportunities for local players. Companies like SLP are aggressively promoting sustainable packaging solutions across ASEAN countries, leveraging products such as fully recyclable monofilm.

To enhance profitability, plastic packaging players are focusing on high-margin niche products and technological advancements. For instance, BPPLAS is launching new blown film packaging tailored for the F&B sector, supported by advanced production capabilities.

The House acknowledged potential margin pressures from rising operational costs and logistics expenses but highlighted mitigation strategies through premium product offerings and operational efficiencies. They reiterated TGUAN as their top sector pick, citing its robust earnings growth potential and strategic initiatives in product innovation and market expansion.

Investors are encouraged to consider opportunities in the plastic packaging sector, given the positive industry outlook and growth prospects highlighted by Kenanga Investment Bank.