Goodpack

OCBC on 14 May 2012

Goodpack’s 3QFY12 revenue grew 4.2% YoY (-0.1% QoQ) to US$43.5m following increased contribution from its newly-won automotive business and higher prices charged on existing customers while a 1.5% YoY (+2.2% QoQ) reduction in logistic and handling costs pushed PATMI higher by 8.6% YoY (+8.0% YoY) to US$11.5m. For 9M12, Goodpack’s revenue and PATMI constituted 75.6% and 75.9% of our FY12 projections, falling within our overall expectations. Going forward, we expect Goodpack to close out FY12 well with demand of its IBCs holding up well in the face of automotive industry support, and further reductions in operating expenses with its cost control initiatives. Following our 15 March take-profit call on Goodpack, the counter has since retreated by more than 13% and we deem the sell-downs to be over. As its results were largely in-line with our expectations, we leave our FY12 and FY13 projections and corresponding fair value estimate of S$1.70 unchanged. Upgrade our rating to HOLD on valuation grounds.

Decent set of results
Goodpack reported a 4.2% YoY (-0.1% QoQ) increase in 3Q12 revenue to US$43.5m following increased contribution from its newly-won automotive business and higher prices charged on existing customers while a 1.5% YoY (+2.2% QoQ) reduction in logistic and handling costs pushed PATMI higher by 8.6% YoY (+8.0% YoY) to US$11.5m. Its 3Q12 revenue was within 0.6% of our projections but the earlier than anticipated inclusion of IBC leasing expenses caused our bottom-line to deviate by 27.2%. However, for the 9M12, Goodpack’s revenue and PATMI constituted 75.6% and 75.9% of our FY12 projections, falling within our overall expectations.

Cost control initiatives paying off
On the cost front, overall 3Q12 operating expenses have come off 12% YoY (-6.8% QoQ) to US$27.2m, which indicates the successful implementation of cost control initiatives by management. Although operating expenses are still higher on a 9M12 basis – due in part to the increase in IBC leasing expenses – we view this quarterly reduction as a positive step in improving operating margin and anticipate a further uptick in 4Q12.

Last quarter to close out well
Going forward, demand for Goodpack’s IBCs in 4Q12 should remain stable at current levels with support for their main revenue segments (the natural and synthetic rubber businesses) coming from the automotive industry as global motor sales maintain their upwards momentum. Coupled with management’s effective control over operating expenses, we expect Goodpack to close out FY12 on a good note.

Upgrade to HOLD on valuation grounds
Following our 15 March take-profit call on Goodpack, the counter has since retreated by more than 13% and has since stabilized over the past two weeks. At this juncture, we view the sell-downs and profit-taking actions to be over, and Goodpack’s decent 3Q12 results could inspire some buyers to return on recent weakness. However, as its results were largely in-line with our expectations, we leave our FY12 and FY13 projections and corresponding fair value estimate of S$1.70 unchanged. Upgrade our rating to HOLD on valuation grounds.