THE plastic packaging sector is expected to see earnings normalise in the second half of 2026 after benefiting from higher selling prices, stronger demand and lower-cost inventories.
Kenanga Research said elevated oil prices following conflicts in the Middle East pushed resin prices up by about 80% or more in the second quarter of 2026, allowing manufacturers to expand margins while customers increased orders to secure supplies amid price hikes and supply uncertainties.
Plastic packaging companies under its coverage, excluding Scientex, recorded a 144% to 223% quarter-on-quarter surge in core net profit in quarter two this year.
BP Plastics Holdings Bhd and Thong Guan Industries Bhd slightly exceeded expectations.
However, Kenanga expects the quarter to have marked the strongest period for earnings this year, as lower-cost inventories have largely been depleted and margins face downward pressure.
Nevertheless, profitability should remain healthy, supported by elevated selling prices and continued inventory replenishment.
The research house has raised its average Brent crude oil price forecasts to US 91 per barrel for 2026 and US 85 for 2027, from US 80 and US 74 previously.
Higher oil prices are expected to support packaging prices, although geopolitical uncertainty remains a key risk.
The sector also faces higher labour costs following Budget 2027’s minimum wage increase from RM1,700 to RM2,000, effective June 2027.
Kenanga estimates the measure could reduce sector net profit by 2% to 6% in 2027, assuming a six-month impact.
Companies are confident of partially passing on the additional costs to customers.
On these notes, Kenanga downgrades the sector rating from Overweight to Neutral.
Accordingly, Kenanga has trimmed its 2027 earnings forecasts and target prices for covered companies by an average of 1% to 6%.
Its top pick remains TGUAN, rated “Outperform” with a target price of RM1.70, supported by growth in food and beverage packaging and overseas expansion.
Other challenges include intense competition from industry overcapacity and uncertainty arising from global trade tensions.
Kenanga noted that direct exposure to higher US tariffs remains limited, as exports to the US account for less than 10% of sector revenue.—Oct 26, 2026
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