Brighter outlook for SLP Resources with increased exports and new MDO-PE customer

KUCHING: Plastic packaging and product manufacturer SLP Resources Bhd’s (SLP) outlook is looking brighter thanks to improving exports of its kitchen and garbage bags and an anticipated robust growth momentum of its MDO-PE film product segment.

In a company update, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) reported that they had recently come away from a meeting with SLP’s management feeling rather upbeat on its outlook as they noted that SLP’s exports of kitchen bags and garbage bags, primarily to Japan have improved by a robust circa 20 per cent year on year (y-o-y) in terms of volume.

The robust growth has been supported by a vibrant leisure and hospitality sector on a tourism boom in Japan, as well as a weaker Japanese Yen.

Recall that the Japanese Yen has been steadily depreciating against the US Dollar and Malaysian Ringgit since 2019. In 2019, the Yen fell from an average of 1 Ringgit to 26.33 Yen or 1 USD to 109.01 Yen to 1 Ringgit to 30.80 Yen or 1 USD to 139.98 Yen in 2023.

Despite the robust growth, the research arm noted that the kitchen and garbage bag exports were still slightly below of pre-pandemic levels and on a less encouraging note, the broader outlook for all of the group’s products remains rather cloudy due to an anticipated sluggish global demand that is exacerbated by heightened geopolitical tensions.

For the group’s MDO-PE film products, Kenanga Research reports that SLP is close to securing a new customer for the segment, a Vietnam-based frozen food exporter that primarily exports to European markets.

The news is especially optimistic for the group’s outlook as the research arm opines that it is one of the many tell-tale signs that SLP’s fully recyclable MDO-PE film is gaining traction, especially, from domestic and ASEAN converters catering to the European market.

To recap, the European Packaging and Packaging Waste Directive (94/62/EC) requires that by the end of 2025, at least 65 per cent by weight of all packaging waste will need to be recyclable, with a specific target of 50 per cent for plastic waste.

This has caused a heightened demand for recyclable packaging globally which bodes well for SLP’s MDO-PE film products in the medium to long-term. “Being a first mover in the production of MDO-PE film in the region, it faces limited competition at present,” the research arm added.

And capitalising on this bright outlook of the segment, the group has also invested an additional RM10 million in a third MDO-PE film line with a nameplate capacity of 230 tonnes per month.

“Upon commissioning by Oct 2024, this new line will raise its MDO-PE film nameplate capacity by over 60 per cent to 600 tonnes per month. The new investment will also boost economies of scale and serve as a buffer against downtime at the existing lines,” the research arm added.