KUALA LUMPUR: The plastic packaging sector is expected to face continued earnings pressure into 2026 amid global trade uncertainties, intense competition, a stronger ringgit and weaker resin prices, Kenanga Research said.
Despite this, the firm noted that demand for premium, consumer used packaging products remains encouraging.
"However, average selling prices continue to face pressure due to falling resin prices, compounded by the broader industry headwinds.
"This trend is reflected in weaker profit before tax despite broadly stable aggregate revenues," it said in a note.
Following its post results analysis and feedback from industry players, Kenanga Researchers maintained its "Neutral" call on the sector.
It cited key factors including global trade uncertainties, heightened competition, ringgit appreciation and ongoing weakness in resin prices.
On global trade uncertainties, Kenanga Research said higher US tariffs are expected to have only a limited direct impact on Malaysian plastic packaging players as exports to the US account for less than 10 per cent of sector revenue.
However, broader trade tensions could dampen demand as a significant portion of plastic packaging films is used in business to business and cross border trade.
The firm said Scientex Bhd stood out among listed peers as the only company with a manufacturing plant in Arizona, which recorded improved orders and potentially better average selling prices in the second and third quarters of financial year 2025.
Kenanga Research said competition has also intensified since 2024 due to industry overcapacity.
This has been driven in part by manufacturers retaining older production lines even after upgrading to newer thin gauge facilities, allowing them to offer aggressive marginal pricing for legacy products.
In addition, demand diversion away from China by some US and European buyers has led Chinese producers to offload excess supply into Southeast Asian markets at lower prices.
"Following our visit to one of China's largest plastic packaging exhibitions in Shanghai, competitive pressures are likely to persist and may escalate further," Kenanga Research said.
On currency movements, the firm noted that the average US dollar versus the ringgit exchange rate strengthened to RM4.33 in the first nine months of 2025 from RM4.63 in the same period last year, resulting in near term foreign exchange pressure for export oriented players.
Although long-term impacts are mitigated by imported inputs such as resin and machinery, Kenanga Research said timing differences between inventory purchases and receivable collections continue to affect margins.
The ringgit is forecast to strengthen further to between RM4.05 and RM3.95 against the US dollar in 2026.
"Based on general estimation, every one per cent change in forex could impact two to three per cent of sector profitability," it said.
The firm also noted that resin prices declined by between 10 per cent and 15 per cent year-on-year in the second half of calendar year 2025, leading to lower average selling prices across the sector.
It said industry checks indicate resin prices are likely to remain soft over the next 12 months, in line with the US Energy Information Administration's bearish outlook on global crude oil prices for calendar year 2026.
As a result, Kenanga Research trimmed its financial year 2026 earnings forecasts for Tomypak Holdings Bhd by four per cent and SLP Resources Bhd by eight per cent.
It kept its earnings forecast for Scientex unchanged, citing potential upside from its US manufacturing operations.
The firm cut its target price for Tomypak by 11 per cent to RM1.29 and reduced SLP's target price by nine per cent to RM0.81 after revising its financial year 2026 dividend forecast to 4.1 sen.
Despite the near term challenges, Kenanga Research said the completion of solar panel installations at companies such as Scientex and BP Plastics Holding Bhd could deliver energy cost savings of about 10 per cent, with the full benefit expected in calendar year 2026.
