This article first appeared in The Edge Malaysia Weekly on August 18, 2025 - August 24, 2025

INVESTORS are shying away from plastic packaging manufacturers, evident by their languishing share price in recent years.So much so, the manufacturers’ trailing 12-month dividend yield now hovers between 5% and 6%.

Despite the relatively attractive yield, analysts hesitate to recommend the sector as it is struggling with a host of challenges ranging from foreign currency fluctuations to trade uncertainty. Adding to the woes are cost pressures that include increased labour costs and inflationary pressures.

While the sector may have benefitted during the Covid-19 pandemic — gaining investor interest as demand for plastic packaging surged with the rise of online shopping, and resin prices (closely tied to oil) remained low — a fund manager now opines that the upside is limited, particularly from a fundamental perspective.

“Low value-added industries, for example plastic packaging, do not offer attractive long-term growth prospects,” he contends, adding they are particularly affected by domestic developments such as higher labour costs and taxes, and increasing compliance costs, making them less competitive as competition intensifies.

It is worth noting that Thong Guan Industries Bhd (KL:TGUAN) specifically highlighted in its first-quarter financial performance review that the recent implementation of minimum wage this year has added to cost pressures, given the increase in payroll expenses.

The minimum wage in Malaysia was recently raised to RM1,700 from RM1,500. In a period of five years, the minimum wage has increased RM500, or 41.6%, from RM1,200 in 2020.

Thong Guan reported a net profit of RM17.89 million for the first quarter ended March 31, 2025 (1QFY2025) against revenue of RM319.01 million. 1QFY2025 net profit was lower by 25% compared to a year ago while revenue was down by 7.4%.

A reprieve of sorts for the sector has come in the form of lower resin prices, which remain below their 2022 peak, tracking the decline in crude oil.

Looking at the three commonly used polyethylene (PE), the weekly spot price for Southeast Asia Low Density Polyethylene (LDPE) hovered at US$1,120 (RM4,719) per metric tonne for the week ended Aug 8, a decline of 10.40% from a year ago.

Meanwhile, High Density Polyethylene (HDPE) shed a total of 6% to US$940 per metric tonne and Linear Low-Density Polyethylene (LLDP) fell 4.9% to US$970 per metric tonne over the same period.

Resin prices have been stable since 2024. Kenanga Research said in a sector report dated July 14 that the combination of persistently high crude and resin supply, along with Organization of the Petroleum Exporting Countries’s (OPEC) decision to further raise production, is expected to limit any significant near-term increase in resin costs.

However, the research house is neutral on the sector as it does not foresee a re-rating catalyst in the near term because of the challenges, the biggest being currency fluctuations and poor visibility due to global trade uncertainties stemming from US trade tariffs.

Similar to many other export-oriented industries, the sector derives half or more of its revenue from overseas markets with sales transacted in US dollar terms. This means that the stronger ringgit has been unfavourable for plastic packaging producers.

Currently, the ringgit stands at 4.2075 to US$1 compared with 4.428 a year ago.

Kenanga Research pointed out that with the ringgit strength expected to continue throughout the year and into next year, it will exert pressure on average selling prices (ASP) and profit margins via the forex translation effect.

“Based on general estimation, every 1% change in forex could impact 2% to 3% of the sector’s profitability,” noted the report.

While most of the plastic packaging companies derive a significant portion of their revenue from overseas markets, it is worth highlighting that much of it goes to other countries in the region, such as Japan and Australia with only a small exposure to the US market.

Kenanga Research said the plastic packaging industry is still nonetheless indirectly impacted by the trade uncertainties, given that a significant portion of plastic packaging films are used in business to business trades, including inter-country trade to ease shipping and logistics.

“A decline in global trade volumes is likely to have dampening effects by reducing overall consumption of plastic packaging materials produced by the companies under our coverage. In addition to that, business owners around the globe may also hold back on inventory stocking activities due to the loss in confidence in global trades,” the report added.

Some plastic packaging companies have also spoken of the steeper competition which has led to margin compression.

BP Plastics Bhd (KL:BPPLAS) said during its first-quarter financial performance review that its net profit has been affected by margin compression as a result of a competitive market while revenue declined on account of lower demand. The group’s net profit for 1QFY2025 fell 41% while revenue declined 8.42% compared to a year ago.

Scientex Bhd (KL:SCIENTX), which is in both the plastic packaging industry and property development, similarly saw compression in its operating profit and revenue for its packaging segment on account of fierce competition and unfavourable foreign exchange rates.

Its operating profit for the cumulative nine months ended April 30, 2025 (9MFY2025) fell to RM107.59 million, 37% lower than a year earlier while revenue was lower by 3.7% at RM1.87 billion.

“Scientex had previously mentioned that new capacity coming online from China had resulted in manufacturers lowering ASPs to maintain market share, especially for export sales. Despite utilisation rate improving marginally to 60% from 59% in 2QFY25, margins remained pressured by the overcapacity in the market,” UOB Kay Hian Research said in its June 19 report on the company.

Among plastic packaging manufacturers listed on Bursa Malaysia, both revenue and net profit have declined, based on the latest cumulative financial results for FY2025.

Of those that have only reported first-quarter results for the period ended March 31, 2025, BP Plastics appears most impacted, with revenue down 8.4% and net profit plunging 41%.

Thong Guan, which also has a financial year ending Dec 31, saw its net profit declining by 25% compared to a year ago while revenue fell 7.4%.

SLP Resources Bhd (KL:SLP) reported a cumulative six month ended June 30, 2025 (1HFY2025) net profit of RM5 million, lower by 38% compared to the previous year as revenue slipped by 2% for 1HFY2025 to RM80.85 million over the same period.

Meanwhile, Scientex Packaging (Ayer Keroh) Bhd (KL:SCIPACK) , a subsidiary of Scientex, reported a cumulative nine month net profit of RM19.47 million, down 24% compared to the previous year while its revenue stayed relatively flat at RM536.03 million for the same period.

On an annualised basis, the plastic packaging companies would all have reported a lower net profit for FY2025 compared to FY2024, with the exception of Thong Guan.

Thong Guan’s annualised net profit for FY2025 amounted to RM71.56 million against annualised revenue of RM1.27 billion. However, the company has only reported its first-quarter financial performance at this point. 

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