Goodpack

Kim Eng on 14 May 2012

In-line with expectations. 3Q12 showed a slowdown in revenue growth, which was slightly disappointing, though bottomline growth of 9% yoy was in-line expectations. The profit growth was achieved with healthy margins, which help mitigate the slower revenue growth.

Slowdown in revenue growth. Revenue grew only 4% yoy, despite an increase in fleet size. This implies a slowdown in fleet utilization which was traced back to global economic weakness during the quarter. About 70% of Goodpack’s revenue is associated with tyremakers (being the end-recipient of both natural rubber and synthetic rubber).

Unlikely to be a company-specific issue. Goodpack’s IBC fleet is generally signed on to medium/long-term contracts, with small volume variations allowed for. However, during the quarter, management shared that many tyremakers, especially factories based in China slowed down production, which in-turn meant delays in its IBC fleet movements or lower utilization. We do not think this is a company specific issue, with evidence of such a slowdown impacting various other listed companies’ result for the quarter.

Strong margins helped cushion profitability. Despite the running cost of a bigger IBC fleet (2.7m, 500k operating under lease), Goodpack achieved commendable margins (net margin of 26.5%) for the quarter, which helped grow net profit 9% yoy to US$11.5m. Profit growth for 9MFY12 so far was 8.5%, and with 4Q12 being seasonally stronger with more contribution of juice business, it is still on track to meet market expectations of 9% bottomline growth for FY12.

Short-term earnings weakness does not affect value proposition. We see short-term earnings weakness as a good buying opportunity. Goodpack has strong long-term pricing power and stable free cash flow. In our scenario analysis, its free cash flow over the next five years and residual value of IBC fleet already gives us a price of $1.62, which  should form a strong floor to share price. Our earnings estimates are trimmed by 2-3% and we reiterate BUY with a TP of $2.50, pegged to 20x FY13 PER.