Following Goodpack’s (GP) announcement that it has entered into an agreement with General Motors South Africa (GMSA) for the use of their Intermediate Bulk Containers (IBCs), its share price has risen almost 29% in slightly over a week. While this major development is a major catalyst for the group going forward – with the potential for GP to increase its automotive sector penetration over the next 24 months – an almost one-third increase in GP’s market capitalization at this juncture seems overdone. Based on GP’s recent 1H12 results, it is currently on track for a full-year 9% YoY revenue growth, which we deem insufficient to support the recent spike in its price. Furthermore, actual utilization of IBCs for GMSA has not commenced. Therefore, in light of the recent sharp price appreciation, profit-taking opportunity has emerged. We change our rating to SELL at an unchanged fair value estimate of S$1.70.
Strong rally following GM win
Following Goodpack’s (GP) announcement that it entered into an agreement with General Motors South Africa (GMSA) for the use of their Intermediate Bulk Containers (IBCs), its share price has risen almost 29% in slightly over a week. While this major development is a huge catalyst for the group going forward – with the potential for GP to increase its automotive sector penetration over the next 24 months – an almost one-third increase in GP’s market capitalization following the announcement (as a result of the share price surge) seems overdone.
Still in the process of tying up the details of the deal
GP is still in the process of tying up the loose ends in terms of operational specifications with the various component export suppliers for GMSA, and actually deployment of the IBCs has not yet commenced. Even at the earliest, which we are projecting before or around 4QFY12, any revenue contribution from this deal will not be material in FY12.
Further penetration into automotive sector required
Based on GP’s recent 1H12 results, it is currently on track for a full-year 9% YoY revenue growth, which we deem insufficient to support the recent spike in its price. As such, we feel that market has been premature in pricing in the full impact of the GMSA deal even before the actual utilization of IBCs.
Time to take profit; SELL
GP’s share price was trading as low as S$1.36 at the start of the month, and with the recent rally in GP’s share price, profit-taking opportunity has emerged. While the deal has good long term potential, at this juncture, we are maintaining our fair value estimate of S$1.70 but changing our rating to SELL. We advocate investors to use this opportunity to realize some profits and re-enter once GP’s share price re-consolidates at lower levels. We prefer to be buyers at S$1.60 or lower.
Following Goodpack’s (GP) announcement that it entered into an agreement with General Motors South Africa (GMSA) for the use of their Intermediate Bulk Containers (IBCs), its share price has risen almost 29% in slightly over a week. While this major development is a huge catalyst for the group going forward – with the potential for GP to increase its automotive sector penetration over the next 24 months – an almost one-third increase in GP’s market capitalization following the announcement (as a result of the share price surge) seems overdone.
Still in the process of tying up the details of the deal
GP is still in the process of tying up the loose ends in terms of operational specifications with the various component export suppliers for GMSA, and actually deployment of the IBCs has not yet commenced. Even at the earliest, which we are projecting before or around 4QFY12, any revenue contribution from this deal will not be material in FY12.
Further penetration into automotive sector required
Based on GP’s recent 1H12 results, it is currently on track for a full-year 9% YoY revenue growth, which we deem insufficient to support the recent spike in its price. As such, we feel that market has been premature in pricing in the full impact of the GMSA deal even before the actual utilization of IBCs.
Time to take profit; SELL
GP’s share price was trading as low as S$1.36 at the start of the month, and with the recent rally in GP’s share price, profit-taking opportunity has emerged. While the deal has good long term potential, at this juncture, we are maintaining our fair value estimate of S$1.70 but changing our rating to SELL. We advocate investors to use this opportunity to realize some profits and re-enter once GP’s share price re-consolidates at lower levels. We prefer to be buyers at S$1.60 or lower.
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