KUALA LUMPUR (Nov 8): BP Plastics Holding Bhd (KL:BPPLAS), which mainly manufactures stretch films and bags, will likely grapple with higher costs that will cut into earnings in the near term, a research house cautioned on Friday.

A revision of the minimum wage and mandatory foreign worker pension contributions will shave 2% off the company's annual net profit from 2025, according to Public Investment Bank’s (PublicInvest) estimates. Labour cost currently makes up about 5% of BP Plastics' total production cost, the house noted.

Further, demand for industrial packaging appears subdued, impacted by a global economic slowdown, PublicInvest said, slashing its earnings forecasts for the financial year ending Dec 31, 2025 (FY2025) and FY2026 to account for slower-than-expected demand recovery as well as policy measures.

The house slashed its target price (TP) by nearly 12% to RM1.43, and kept the stock on a ‘neutral’ call, ahead of the third-quarter results announcement due by the end of this month.

Shares of BP Plastics have lost most of their recent gains, ekeing out less than 3% gain year-to-date, amid concerns over demand for plastic packaging closely tied to global economic growth.

There are now two ‘hold’ and one ‘buy’ calls on BP Plastics. The consensus 12-month TP is RM1.47, according to Bloomberg, implying a 21% gain from the last price.

The ringgit has strengthened sharply against the US dollar, dragging on exporters such as BP Plastics that gets more than two-thirds of its sales from abroad.

A stronger ringgit would reduce the competitiveness of BP Plastics’ exports, PublicInvest flagged. As the company’s export products are priced in US dollars, a stronger local note also means lower earnings when converting foreign revenues back into ringgit, the house said.