Goodpack

OCBC on 29 May 2014

Goodpack announced the proposed acquisition by an affiliate of KKR via a scheme of arrangement at S$2.50 cash/share. This will require: 1) the approval by a majority of Goodpack shareholders who are holding at least 75% in value of Goodpack shares held by those present and voting, and 2) sanction by the High Court of Singapore. If this all-or-nothing deal succeeds, KKR will delist Goodpack. Though the offer is only at a 6.8% premium to the last closing price before this announcement, we note that the run up since March has largely priced in a privatisation. Given the above and that our fair value estimate of S$2.61 is just 4.4% higher than KKR’s offer price, we recommend shareholders to accept the offer.

KKR intends to delist Goodpack at S$2.50 cash/share
Goodpack announced the proposed acquisition by IBC Capital, an affiliate of KKR, via a scheme of arrangement (share scheme) at S$2.50 cash/share. The deal values Goodpack at about S$1.4b. The share scheme will require: 1) the approval by a majority of Goodpack shareholders who are holding at least 75% in value of Goodpack shares held by those present and voting, and 2) the sanction of the share scheme by the High Court of Singapore. Unlike General Offer where each shareholder individually decide to sell his share or not, once the share scheme is approved all existing shares will be acquired regardless of individual decisions. Essentially, this will be an all-or-nothing deal for KKR. KKR has stated its intention to delist Goodpack if the deal goes through.

Support representing 32% of shares obtained
IBC Capital has received irrevocable undertakings from founder Mr Lam, representing 32% of total Goodpack shares, to vote in favour of the share scheme. Since the approval only requires support from present and voting shareholders (i.e. those absent/not voting do not count towards the denominator that the 75% is based upon), Mr Lam’s support greatly sways the outcome of the deal towards one that will go through. 

Accept the offer
The offer of S$2.50/share represents a premium of 23.2% to the closing price on 18 Mar 2014, or 34.3% to the 6-month volume weighted average price to 18 Mar 2014 (18 Mar 2014 is the day prior to an announcement by Goodpack in respect of a possible transaction). Though the offer is only at a 6.8% premium to the last closing price before this announcement (S$2.34 on 23 May 2014), we note that the run-up since March has largely priced in a privatisation. Furthermore, newswires have reported that other suitors, Blackstone Group and Carlyle Group, have dropped out. Given the above and that our fair value estimate of S$2.61 is just 4.4% higher than KKR’s offer price, we recommend shareholders to accept the offer.

Goodpack

CIMB Research, May 28

GOODPACK and private equity firm KKR have entered into an agreement for the acquisition of Goodpack's entire share capital at S$2.50/share, by way of a scheme of arrangement.

The scheme has a long-stop date of Oct 31, 2014, and requires 75 per cent shareholder approval at an EGM which will be held in due course.

The S$1.4 billion offer values Goodpack at 12.6 times FY2013 EV/Ebitda - higher than the average buyout multiple of 7.5 times and the average exit multiple of 11.5 times for global PE deals in H1 2013, according to data compiled by Mergermarket.

On a PE basis, the offer price of S$2.50/share implies 17.5 times consensus FY2015 PE (15.3 times FY2016 PE). Goodpack has historically traded at an average of 15 times forward PE, which we think is a fair multiple based on its forecasted earnings growth of 13-14 per cent in FY2015-17.

Thus, KKR is offering shareholders what Goodpack should be worth next year, one-year forward.

We believe that KKR's offer to buy Goodpack for S$1.4 billion is fair, although investors may have been hoping for a higher offer price given that:

1) its closest listed competitor, Brambles, trades at a higher PE multiple; and

2) the offer price only represents a 7 per cent premium over the prior closing price.

We think that the deal is fair, and advise investors to take the offer. While the offer price represents only 7 per cent premium to the prior closing price, we believe that investors have already largely priced in a takeover scenario.

If the deal falls through, we expect Goodpack's share price to trace back to the S$1.90-S$2.00 levels that it was trading at prior to its announcement on March 19 that it was in talks with several parties over a potential takeover offer (13 times-14 times FY2015 PE).

Our recommendation changes from "add" to "hold" due to limited upside to the offer price. Our target price is unchanged at S$2.51, based on 15 times FY2016 PE (seven-year mean).

HOLD

Goodpack

OCBC on 14 May 2014

Goodpack’s 3QFY14 revenue increased 14.2% YoY to US$51.2m while PATMI increased 20.2% to US$13.1m. Though 3Q is typically the weakest quarter, 3QFY14 revenue and PATMI increased 0.5% and 4.8% QoQ respectively due to stronger demand from synthetic rubber clients. The results met our expectations as 9MFY14 revenue of US$154.2m forms 73.5% of our FY14 forecast, while PATMI of US$39.4m makes up 73.2% of our expectation. There is steady progress in auto parts segment as Goodpack’s 9MFY14 revenue from auto parts clients doubled to US$2m, with acquisition of more tier one and tier two suppliers in the quarter. We continue to like Goodpack as it expands its footprint in the auto parts market while retaining market leadership in the rubber segment. As we roll forward our DCF model, we derive a new fair estimate of S$2.61 (previous: S$2.17) and upgrade Goodpack to a BUY.

3QFY14 results in-line
Goodpack’s 3QFY14 revenue increased 14.2% YoY to US$51.2m while PATMI increased 20.2% to US$13.1m. The strong set of growth comes from increased penetration in existing markets as a result of new customer conversion and increased demand from existing customers. Though 3Q is typically the weakest quarter due to lower demand from juice segment, 3QFY14 revenue and PATMI bucked the trend by increasing 0.5% and 4.8% QoQ respectively on the back of stronger demand from synthetic rubber (SR) clients. The results met our expectations as 9MFY14 revenue of US$154.2m forms 73.5% of our FY14 forecast, while PATMI of US$39.4m makes up 73.2% of our expectation. In 3QFY14, depreciation and amortisation expense increased 11.3% YoY to US$5.0m due to increase in Intermediate Bulk Container (IBC) fleet size; other operating expenses increased 7.2% to US$6.0m due to the increase in operating leasing expenses on the rental of the IBCs.

Steadily expanding footprint in auto parts
Goodpack’s 9MFY14 revenue from auto parts clients has doubled to US$2m, with acquisition of more tier one and tier two suppliers in the quarter. Management remains positive on the growth of the auto parts segment, and is taking measures such as expansion of sales headcount to bring more clients onboard. We see future growth in auto parts segment as coming from: 1) new clients, 2) existing clients transporting more parts through Goodpack’s IBCs, and 3) existing clients’ other regional offices. While management sees interest from auto parts manufacturers, the sales and approval process is a bottleneck. Not only does an auto parts manufacturer have to seek internal approval for each part separately, it also has to ensure the party it delivers to is agreeable with handling the IBCs.

BUY with S$2.61 fair value
We continue to like Goodpack as it expands its footprint in the auto parts market while retaining market lead

Goodpack

OCBC on 2 Apr 2014

We draw investors’ attention back to fundamentals as speculation about possible share offer for Goodpack wanes. Since our last BUY call in Feb-14, the share price has gained 15%. We keep our fair value estimate of S$2.17 intact and downgrade to a HOLD. We acknowledge that Goodpack continues to hold compelling value propositions: its global presence and ~20% cost savings over alternatives. There are also barriers to entry from IBC design patent, stickiness of existing clients, and large capex spending. We believe Goodpack is among the top choices for any new synthetic rubber (SR) plant, as exemplified by Goodpack being the supplier for Singapore’s new SR plants, including the latest Sumitomo Chemical plant opened in Mar-14. Further catalysts for rerating could be 1) current trial-stage auto parts manufacturers switching over fully to IBCs before 2QFY15 as assumed in our base case, and 2) another upside risk is higher-than-expected demand from rubber industry.

Return to fundamentals as speculation eases

Goodpack recently announced that it has been approached by parties in connection with a possible transaction and discussions are on-going. Brambles, which also offers intermediate bulk containers (IBC) leasing among other packaging solutions, subsequently said it has approached Goodpack previously but it is not currently in talks. Instead of betting on whether there will be further upside through share offer, we prefer to draw investors’ attention back to fundamentals.

Competitive advantages and upside risks remain
Goodpack’s most compelling value propositions to its clients are its global presence and unique IBCs that yields ~20% cost savings over alternatives. On the other hand, there are barriers to entry in the forms of: 1) IBC design patent with 15 years remaining, 2) stickiness of existing clients, and 3) large capex spending of ~US$900m to match Goodpack’s current fleet size. Hence, we believe Goodpack’s business model is still sound and will continue to grow. We believe Goodpack is among the top choices for any new SR plant given its ~30% market share and track record. For instance, Goodpack has the supplier for new SR plants in Singapore, including the latest Sumitomo Chemical plant opened in Mar-14. We think a major upside surprise is current trial-stage auto parts manufacturers switching over fully to IBCs before 2QFY15 as assumed. We note that this is the third year of engaging auto parts clients, a relatively mature stage of the sales process. We re-iterate that accelerated growth in auto parts segment would follow due to the network effect whereby others adjacent to clients in the supply chain will switch over to minimise logistics handling system. Another upside surprise is higher-than-expected demand from rubber industry, from either existing accounts or new synthetic rubber (SR) plants. 

HOLD after 15% return
The share price has gained 15% since our BUY call on 5 Feb-14, briefly hitting an all-time high of S$2.28. We continue to like the company but are keeping our S$2.17 fair value estimate. Hence, we deem Goodpack fairly priced and change our call to a HOLD.

Goodpack Limited

OCBC on 17 Feb 2014

Goodpack’s revenue and PATMI for 2QFY14 met our expectations by increasing 9.8% YoY to US$50.9m and 12.0% to US$12.5m respectively. 1HFY14 revenue at US$103.0m forms 99.9% and 49.1% of our 1HFY14 and FY14 forecasts respectively. Correspondingly, 1HFY14 PATMI at US$26.4m forms 100.4% and 49.0% of our 1HFY14 and FY14 forecasts. We maintain our previous investment thesis that new accounts and segments will drive growth as Goodpack acquired a new synthetic rubber client in China and also three new auto parts clients to start off with trials. We maintain our BUY call with a DCF-based fair value of S$2.17.

2QFY14 results within expectations
Revenue and PATMI for 2QFY14 met our expectations by increasing 9.8% YoY to US$50.9m and 12.0% to US$12.5m respectively. 1HFY14 revenue at US$103.0m forms 99.9% and 49.1% of our 1HFY14 and FY14 forecasts respectively. Correspondingly, 1HFY14 PATMI at US$26.4m forms 100.4% and 49.0% of our 1HFY14 and FY14 forecasts. We think that Goodpack is on track to meeting our forecasts for FY14, given that Goodpack typically has a stronger 4Q. Operating expenses rose 10.3% to US$34.5m, which we judge to be largely in tandem with topline growth. For 1HFY14, depreciation and amortization expense rose 15.1% to US$9.9m while other operating expenses rose 22.2% to US$13.0m due to acquisition and leasing of more IBCs. As management has previously guided that they only acquire more IBCs upon demand confirmation, we think this is a positive leading indicator for the next two quarters.

Progress with new accounts on track
In our previous report titled “A promising 2014” on 5 Feb-14, we put forth the investment thesis that new synthetic rubber (SR) clients will be the growth driver for FY14/15, while scaling up by trial-stage and acquisition of new auto parts accounts will contribute more prominently from 2QFY15 onwards. We maintain this thesis as Goodpack’s progress is on track. Goodpack acquired a new SR client in China and also three new auto parts clients to start off with trials. We expect new SR client to ramp up in the coming two to three quarters given Goodpack’s track record with SR producers. Though we do not expect scaling up by auto parts clients till a year later, the acquisition of new on-trial auto parts clients is a healthy sign of their receptiveness in switching over. It also provides the indirect benefit of prompting other suppliers to take a closer look at what Goodpack has to offer.

Maintain BUY
We believe Goodpack’s growth story is on track and maintain our BUY call with a DCF-based fair value of S$2.17.

Goodpack

OCBC on 5 Feb 2014

We met up with Goodpack’s management and better understood their growth drivers in 2014. While the impact of economic recoveries in the US and Europe on Goodpack’s growth is likely to be limited, we expect new SR accounts to be the key driver for growth over FY14/15 as Goodpack continues to engage auto parts manufacturers. In addition, we believe that, given the cost savings of up to 20% and Goodpack’s proactive role as an on-the-ground partner, scaling up and adoption will feature more prominently in Goodpack’s earnings profile from 2QFY15 onwards. Upgrade to BUY with new fair value estimate of S$2.17 from S$1.87 due to change in analyst and updated assumptions.

New accounts and segments are aces
Management has guided that new accounts and segments can drive topline growth into regions of above 10%. In FY14/15, Goodpack’s growth will be driven by new synthetic rubber (SR) accounts and its next growth level will come from gaining a foothold in the auto parts market. We believe there will be a network effect whereby other non-clients adjacent to clients in the supply chain will adopt Goodpack’s intermediate Bulk Containers (IBCs) so as to minimise the number of logistics handling systems involved. In our view, the securing of new accounts will then have the potential to create accelerated earnings in a few years’ time - a point which is likely overlooked by the market.

Limited measurable progress ≠ ground progress
Management has guided that sales cycle may take up to a few years, noting that the first SR contract took four years to begin running at full scale. Other than just negotiating lease terms, a sales cycle also involves working with 1) labour unions, 2) various players in the supply chain to ensure their logistics capabilities can handle IBCs from Goodpack’s clients and 3) technical checks on the auto parts’ intactness. We expect the earnings impact from this to kick in more prominently from 2QFY15 onwards due to the compelling cost savings of up to 20% for the auto parts manufacturers and Goodpack being an on-the-ground partner. 

Europe and US recoveries are positives but limited
Europe’s and US’ turnaround stories have increasingly caught on, which are positives for Goodpack given its 45.3% Europe and North America exposure in FY13. However, with only somewhat positive forecasted GDP growths of 2.6% for US and 1.3% for Europe, these are just icings for Goodpack’s revenue growth ahead. 

Upgrade to BUY
Due to a change in analyst and assumptions, the DCF-based fair value is raised to S$2.17 from S$1.87 with a BUY call.

Goodpack

OCBC on 12 Nov 2013

Goodpack’s 1QFY14 results came in within expectations with revenue increasing 7.7% YoY to US$52.1m following greater demand by customers in the rubber industry. The company also managed to keep operating margins relatively stable despite incurring higher depreciation and financing costs from having a larger IBC fleet. As a result, operating profit and PATMI grew by 11.8% YoY to US$19.3m and 7.2% to US$13.9m, respectively. For the remaining quarters, we expect top-line growth to sustain as its key clients’ synthetic rubber (SR) operations in Singapore ramp up operations. In terms of margins, we had previously factored in some margin deterioration but the decent 1QFY14 performance gives us some cause for optimism for the rest of year. Nonetheless, we leave our conservative FY14F projections intact but incorporate a slower pace of debt repayments. This causes our DCF-derived fair value to rise to S$1.87 (S$1.69 previously). However, Goodpack’s share price has risen by more than 23% since late-Aug, we believe that much of the upside has been priced in at this point. Downgrade to HOLD.

Decent set of 1Q14 results
Goodpack’s 1QFY14 results came in within expectations with revenue increasing 7.7% YoY to US$52.1m following greater demand by customers in the rubber industry. The company also managed to keep a lid on the pace of operating costs increases – despite incurring higher depreciation and financing costs from having a larger IBC fleet – and operating profit and PATMI grew by a corresponding 11.8% YoY to US$19.3m and 7.2% to US$13.9m, respectively. Although this bottom-line increase was partially aided by one-off foreign currency gains (US$860K gain vs. US$679K loss in 1QFY13), there was improvement on a core basis QoQ, which gives us comfort that opex increases have remained in check. 

Top-line growth to continue; opex should be manageable
For the remaining quarters, we expect top-line growth to sustain as its key clients’ synthetic rubber (SR) operations in Singapore ramp up operations. In terms of margins, we had previously projected some deterioration in 1QFY14 as a result of having a larger IBC fleet but 1QFY14 margins have held up well on a YoY basis so there is some cause for optimism for the rest of the year. In addition, we also expect leasing costs to taper off gradually as Goodpack continues to shift towards purchasing a larger proportion of IBC additions. As for financing costs, the bulk of its debts have fixed rates so we are unconcerned over a potential hike in rates. 

Downgrade to HOLD
We leave our FY14F top-line forecasts intact but incorporate a slower pace of debt repayments. This causes our DCF-derived fair value to rise to S$1.87 (S$1.69 previously). With Goodpack’s share price increasing by more than 23% since late-Aug, we believe that much of the upside has been priced in at this point. Therefore, we downgrade Goodpack to HOLD.

Goodpack

DBS Group Research, Sep 5

GOODPACK has demonstrated much resilience in both earnings and share price performance.

During the global financial crisis, Goodpack's revenue for 2009 eased off by just 2.9 per cent y-o-y, despite the 9 per cent drop in overall rubber tyre consumption volumes. This is attributable to its synthetic rubber (SR) market share gain and long term relationship with blue-chip customers. During the 2010 recovery, Goodpack showcased its ability to fully capitalise on the upswing, as revenues grew by 28.4 per cent - nearly twice the growth in volumes for rubber consumption in the tyre sector. The short- and long-term beta of Goodpack's share price is at 0.6-0.7 times, suggesting it is less volatile than the market, partly because Goodpack's shares are tightly held.

Goodpack's earnings growth has been rather muted in the past two years, growing at mid-to-high single digits due to challenging operating environment. We believe the tide is changing for Goodpack and project a two-year compound annual growth rate of 17 per cent in FY2013-2015F, driven by market share gain in SR segment and cost-saving initiatives. This is augmented by the recovery in US/Europe (45 per cent of Goodpack's revenue) and bottoming out of the rubber industry, which is expected to grow at 2-6 per cent in the same period. The crytalisation of an autopart contract from a major OEM in Europe will prompt us to further re-rate. Besides, Goodpack should not be affected by any potential rate hikes as about 90 per cent of its debts are fixed rate.

Goodpack is trading at -1 standard deviation, and near the replacement cost of its IBC fleet, which is not a fair reflection of Goodpack's market leadership, global logistic network, strong customer base and growth prospects. Our discounted cash flow-based S$2.00 target price translates to 15.4 times forecasted FY2014 price to earnings and 2.3 times P/BV, in line with historical mean. Goodpack also offers 3-4 per cent dividend yields based on a 45 per cent dividend payout ratio. Reiterate "buy" on Goodpack with a potential total return of 24 per cent.

BUY

Goodpack

OCBC on 28 Aug 2013

Goodpack’s FY13 results were in-line with expectations. Revenue grew by a smaller 7.7% YoY to US$190.9m while PATMI improved 13.4% YoY to US$51.3m as its cost saving initiatives helped to offset higher depreciation and financing costs from a larger fleet and increased borrowings respectively. Similar to last year (FY12), management declared a final dividend of 2 S cents and a special dividend of 3 S cents. Although we lower our revenue forecasts for FY14, we still expect growth improvement following the commencement of key clients’ synthetic rubber (SR) operations in Singapore and a new SR contract in Russia. In terms of margins, we only expect a small drop-off as continued cost saving initiatives should keep a lid on logistic and handling expenses. In light of its unchanged fundamentals and recent share price correction, we maintain BUY on Goodpack with a slightly lower fair value of S$1.69 (S$1.80 previously).

FY13 within expectations
Goodpack’s FY13 results came in within expectations. Although revenue grew by a smaller 7.7% YoY to US$190.9m (versus 11.7% YoY in FY12) following a slowdown in the rubber demand, PATMI improved 13.4% YoY to US$51.3m (net margins +0.6ppt to 27.3%) as its cost saving initiatives helped to keep logistic and handling costs in check and offset higher depreciation and financing costs from a larger fleet and increased borrowings respectively. Similar to last year (FY12), management declared a final dividend of 2 S cents and a special dividend of 3 S cents. 

Top-line growth to improve in FY14
Entering FY14, we expect top-line growth to pickup following the commencement of key clients’ synthetic rubber (SR) operations in Singapore and a new SR contract in Russia. In addition, the potential of a boost from the automotive segment remains. 

A lid on opex & financing costs
Despite having a larger IBC fleet, we only expect margins to come off slightly. The group has demonstrated its ability to keep a lid on the main opex component of logistics and handling costs and FY14 should not be an exception. Coupled with the shift towards purchasing a larger proportion of new IBC requirements as well as some existing leases, leasing costs should also taper off gradually. As for financing costs, the bulk of its debts have fixed rates so we are unconcerned over a potential hike in rates. 

Maintain BUY
We lower our FY14F revenue growth forecast to 9% (15% previously) as we temper the pace of new IBC demands. This causes our DCF-derived fair value to lower to S$1.69 (S$1.80 previously). Nonetheless, Goodpack’s fundamentals remain unchanged and its recent share price correction opens up a buying opportunity for long-term investors. Maintain BUY.

Goodpack

OCBC on 5 June 2013

With the official opening of Lanxess’s synthetic rubber plant in Singapore, we expect production to commence in 1QFY14, and Goodpack will be able benefit corresponding given the additional IBCs that it had procured earlier. In addition, the plant will only reach full capacity utilization by 2015, so that means Goodpack will be able to enjoy incremental earnings until the plant reaches a steady state of production. With another deal in the pipeline (Asahi Kasei), its prospects look positive in the coming quarters. That said, as its share price fell by as much as 4.4% since our last update, we deem that a buying opportunity has emerged for the stock. Therefore, we are upgrading Goodpack to BUY with an unchanged fair value estimate of S$1.80.

Lanxess opens Butyl rubber plant in Singapore
Lanxess, the world’s biggest manufacturer of synthetic rubber (SR) – and a significant client of Goodpack’s – officially opened its new butyl rubber plant on Jurong Island yesterday. The facility is designed for a capacity of 100K metric tonnes/year, and is the company’s largest investment in five years. Lanxess had chosen Singapore due to its position as a key SR manufacturing site, and its proximity to the emerging Asian markets of China and India, where the company will be able to meet the rising demand for tyres. 

Goodpack on track to benefit
Goodpack had already secured contracts with Lanxess back in 2QFY13 but there were originally concerns over a potential delay in production. However, with this official opening, and through enquires with Lanxess, we can expect production to commence in 1QFY14. With the additional intermediate bulk containers (IBCs) that it had procured earlier, Goodpack will be able hit the ground running together with the plant. Furthermore, the plant will only reach full capacity utilization by 2015, so that means Goodpack will be able to enjoy incremental earnings until the plant reaches a steady state of production. 

Another plant in the pipeline
Lanxess aside, Goodpack has another deal in the coming quarters with a SR plant by Asahi Kasei. Production at this plant (and use of its IBCs) should come in by 2QFY14, although we await official word on this development. 

Recent share correction presents opportunity
Goodpack’s share price fell as much as 4.4% since our last update in the aftermath of its 3Q13 results release. That said, this price correction presents an opportunity for investors to gain exposure to an important player in the IBC market, and indirect beneficiary of the growing middle class in China and India. Upgrade Goodpack to BUY with an unchanged fair value estimate of S$1.80.

Goodpack

OCBC on 14 May 2013

Goodpack’s 3Q13 results met our expectations with revenue growing 3.0% YoY to US$44.8m on the back of continued gains from its synthetic rubber segment. Although operating expenses fell slightly and operating profit increased by 7.5% to US$16.3m, higher financing expenses caused PATMI for the quarter to fall 5.9% to US$10.9m. Entering 4Q13, we reduce our revenue projections following a delay in IBC usage for two new synthetic rubber contract wins back in 2Q13 but still expect a decent showing for its 4Q13 results. While we deem its recent share price decline to be overdone, our fair value falls to S$1.80 (S$1.95 previously) due to the lack of a near-term catalyst. Downgrade to HOLD.

3Q13 results meet expectations
Goodpack’s 3Q13 results met our expectations with revenue growing 3.0% YoY to US$44.8m following continued gains from its synthetic rubber segment. Although operating expenses fell slightly by 0.4% to US$23.1m and operating profit increased by 7.5% to US$16.3m, higher financing expenses caused PATMI for the quarter to fall 5.9% to US$10.9m. In terms of its 9MFY13 performance, Goodpack’s top and bottom-line figures constituted 70.3% and 73.9% of our FY13 projections. 

Share price fall related to weaker outlook by key clients
In our view, Goodpack’s 7% share price decline since Feb is largely due to knee-jerk reactions to the issuance of negative outlooks by its key synthetic rubber (SR) clients such as Lanxess and Goodyear (Goodpack receives ~55% of its revenue from the SR segment). However, the downcast projections related to weaknesses in Europe and other mature markets and growth from emerging markets such as China remained resilient. In addition, these clients did also state that they expect demand to pick up over the course of 2013. 

Decent growth for 4Q13; pickup to come in FY14
Back in 2Q13, Goodpack had secured contracts with the two SR plants by Lanxess and Asahi Kasei in Singapore and had been ramping up its borrowings to expand its IBC fleet. Unfortunately, production at these plants (and use of its IBCs) has been delayed till 1Q/2QFY14. Therefore, we reduced our FY13 revenue projection to 7% and push-off the revenue pickup to FY14. Nonetheless, we expect Goodpack to post decent single-digit revenue growth for 4Q13. 

Downgrade to HOLD for now
Following our adjustment, we downgrade the counter to HOLD as our fair value falls to S$1.80 (S$1.95 previously). We deem this move to be temporary until after its 4Q13 results, barring any deterioration in the macro-economic situation.

Goodpack

OCBC on 7 Feb 2013

Goodpack's 2Q13 revenue increased by 6.4% YoY to US$46.4m following continued growth from its Synthetic Rubber (SR) segment. Operating profit rose by a corresponding 15.4% to US$16.2m - despite operating expenses rising by 7.1% YoY to US$31.8m - and PATMI gained 4.0% YoY to US$11.1m. We raise our FY13 and FY14 outlook on sustained improvements within the SR space as tyre demand holds up and new SR plants open in Singapore. Aided by two recent key contract wins, Goodpack stands in good stead to benefit once production from these SR plants ramp up in the middle of CY2013. As a result, we upgrade Goodpack to BUY and our fair value estimate increases to S$1.95 from S$1.85 previously.

2Q13 results within expectations
Building on its strong 1Q13 performance, Goodpack's 2Q13 results saw revenue increase by 6.4% YoY to US$46.4m following continued growth from its Synthetic Rubber (SR) segment. Operating profit for the quarter increased by a corresponding 15.4% to US$16.2m - despite operating expenses rising by 7.1% YoY to US$31.8m - and PATMI gained 4.0% YoY to US$11.1m. In terms of its 1H13 performance, Goodpack's top and bottom-line came in within our expectations (-0.2% and +3.7% respectively) with the figures constituting almost 50% and 52% of our FY13 revenue and PATMI forecasts respectively. 

Goodpack's fortunes tied to Synthetic Rubber 
Currently, the SR segment contributes almost 55% of the group's revenue, and this figure looks set to grow further as Goodpack's penetration within this market continues to yield encouraging results. Aided by the continued growth in demand from the automotive space (i.e. passenger tyre demand) - and the completion of several SR plants in Singapore from now till 2015 - we expect to see Goodpack grabbing greater market share going forward. For instance, Goodpack has already secured contracts to service the two new SR plants in Singapore (Lanxess and Asahi Kasei). 

Projections raised as prospects improve
We raise our revenue forecasts for FY13 and FY14 by 2% and 5% respectively to account for the higher revenue contribution from the SR segment. We also factored in higher financing costs following an increase in borrowings for the Group but this was offset by a corresponding reduction in operating expenses. As a result, our PATMI increases by 2.4% and 5.6% respectively for FY13 and FY14.

Upgrade to BUY 
With the improved projections, our fair value now increases to S$1.95 (S$1.85 previously). Upgrade to BUY.

Goodpack Ltd

Kim Eng on 7 Feb 2013

Weak quarter, below expectations. 2QJuneFY13 results were below expectations, largely on the continuation of slow business activities in existing segments. Net profit for the quarter came in at USD11.1m, which was up 4% yoy. This brings 1HFY13 net profit to USD24.1m, up 7% yoy. Though numbers fell short, we are maintaining a BUY as we think the overall resiliency in earnings is a key feature of its business, and numbers are likely to show improvements in 2HJune13.

Weak revenue growth. Revenue growth for the quarter was up just 6% yoy. Management shared that most of its customers in existing segments experienced slow business activities, which resulted in slower turnaround of its IBC boxes. We estimate total IBC fleet stands around 2.9m, and full year will likely show overall increase of its earlier planned 250-300k boxes.

Cost savings are likely to come in 2H13. Goodpack set up their own depot centres in Europe and US, which started operations in January 2013. This in-housing as well as consolidation of various centres into a
single expanded one is likely to yield some cost savings. During the quarter, management also bought back some of its previously leased IBC boxes. This resulted in higher capex during the quarter, but a reduction in
lease expenses, which lowered overall cost.

Positioning ahead of auto contract wins. Employee benefits expense was an earnings drag this quarter, showing a 27% yoy increase. We understand there was an increase in headcount of its sales force, which will focus on penetrating the auto-parts sector. During the quarter, Goodpack also upsized its Medium-Term Note (MTN) program, from the earlier USD300m to USD600m. While there are no plans to utilize the full amount yet, management is positioning its war chest ahead of possible breakthroughs in the auto sector.

2H13 likely to be stronger. We think the overall growth story for Goodpack remains intact, even if profit growth this year is below par. While the upcoming 3QFY13 quarter is historically seasonally weak, this year’s will be boosted by requirements for the new synthetic rubber plants in Singapore. Key-catalyst still remains progress on the auto-parts sector. We cut our FY13F earnings by 6%, but keep FY14F-FY15F largely unchanged. Maintain BUY with a lower TP of SGD2.15, still pegged to 20x FY13F PER.

Goodpack Ltd

Kim Eng on 23 Nov 2012

Steady 1Q13 results. Our recent discussions with management suggest that business conditions remain difficult for Goodpack, as a result of an overall slowdown in activities in China as well as Europe. Nonetheless, we think the decent growth in the recent seasonally weaker 1Q13 results proves that Goodpack has a resilient business model.

Recurring net profit still grew 15%. Stripping out a USD0.6m gain from disposal of PPE in the corresponding period last year, recurring income still grew 15% to USD13m, despite a US1.5m swing in foreign exchange gain. This appears to be operating leverage from better trade lane matching, as revenue grew 11% against logistics costs of 6%.

Europe and China are slow. The former makes up about 20% of group revenue and is especially slow due to weaker demand for commercial vehicles. Over in China, overall manufacturing activities have slowed down, impacting demand for both synthetic rubber and natural rubber. In terms of product verticals, natural rubber has seen more slowdown due to the narrower application and Goodpack’s bigger market share. On the auto parts market, progress has been disappointingly slow, as customers are more pre-occupied with their slowing business.

Additional business from synthetic plants in Singapore. Management shared that two of the six new synthetic rubber plants in Singapore should come onstream in 3QFY13F. With a combined capacity of 150,000 tpa,
we estimate this will be a requirement of about 30-50k new boxes. Out of the 6 plants, Goodpack has signed with 4 so far, which should again add on to this requirement. Goodpack’s IBC fleet is currently estimated at 2.8m and addition this year should be around 250k.

Earnings usually come back stronger. With the likely slower progression on the auto-front, we trim our FY14F-FY15F earnings by 5- 9% while keeping FY13F largely unchanged. This is still a resilient business which we think investors should hold over the longer-term. Key catalyst still remains progress on the auto-parts vertical. On the other hand, slower demand and subsequently capex for new boxes may lead to
dividend surprises, given its low-gearing of 15% currently. Maintain BUY with a TP of SGD2.25, now pegged to 20x PER.

Goodpack

OCBC on 14 Nov 2012

Goodpack's 1Q13 results came within our expectations: revenue rose 10.9% YoY to US$48.4m while operating profit gained 13.4% YoY to US$17.2m after overcoming a slight increase in operating expenses. Although financing costs for the quarter almost doubled to US$2.4m following an increase in borrowings, PATMI still came in 9.7% YoY higher to US$13m. Goodpack's good start to FY13 came on the back of a continued strong showing within the synthetic rubber segment, and we believe that this segment will persist on its growth trajectory with support from the automotive space and from key customers such as Lanxess. Our fair value estimate remains unchanged at S$1.85 and we maintain our HOLD rating. However, given the counter's 9.3% appreciation since our last report, we urge profit-taking for investors, and re-enter closer to S$1.80.

1Q13 results within expectations
Goodpack's 1Q13 results came within our expectations (-0.8% and -3.9% for top and bottom-line figures respectively). The group's revenue saw a 10.9% YoY increase to US$48.4m following continued growth from the Synthetic Rubber (SR) segment while operating profit rose 13.4% YoY to US$17.2m despite a 2.8% YoY increase in operating expenses, which was largely due to higher logistic and handling costs. With higher borrowings at the end of FY12, financing costs for the quarter almost doubled to US$2.4m although PATMI still came in 9.7% YoY higher to US$13m. On a FY13 basis, 1Q13 constituted 25.4% and 28.1% of our FY revenue and PATMI forecast respectively. 

Synthetic rubber remains key segment
As previously stated in our last report (28 Aug), the group's strong start to FY13 has been tied to the SR segment. We maintain our reasoning that growth in the SR market - where Goodpack receives more than 50% of its revenue - will continue following support in the automotive space. One of its key clients, Lanxess, has reaffirmed an EBITDA growth target of 5% for CY2012 on the back of growth - albeit at a slower pace - in North American and Chinese car demand. Furthermore, Lanxess is investing substantially e.g. SR plant in Singapore due to open in 1QCY2013, in order to partake in the long-term growth potential of Asia. 

Forecasts adjusted slightly
As a result of its increased borrowings, we adjusted our FY13 and FY14 forecasts slightly to account for higher finance costs. However, this small increase was offset by a reduction in logistic and handling expenses after we factored in more favourable rates for the group. Overall, PATMI for FY13 remained unchanged while FY14's rose 2% to US$49.8m. 

Valuations unchanged; maintain HOLD 
Despite the changes, our HOLD rating remains as our DCF-derived fair value of S$1.85 stays unchanged. Given the counter's 9.3% appreciation since the date of our last report, we deem upside at this point to be limited. As such, we urge investors to take some profit off and re-enter at a lower level around S$1.80.

Goodpack

CIMB Research on 17 Sept 2012

GOODPACK'S founder Lam Choon Sen has relinquished his role as managing director. He is succeeded by the president of Autoparts Michael Liew. We see no major changes in its strategic direction and focus on autoparts and synthetic rubber penetration.

Maintain "neutral" with an unchanged target price, still based on 14.3x 2013 EPS (-0.5sd from historical five-year forward average). The change at the top will not alter Goodpack's strategic direction, and our positive view of its longer-term potential. However, we think that the current valuation of 13.8x 2013 EPS has largely priced-in its near-term potential.

Mr Lam has stepped down as managing director and passed the baton to Mr Liew, group executive director and president of autoparts transportation. Mr Lam will stay on as group executive chairman to focus on the more strategic aspects of the business.

We view this move as an essential one for two reasons. First of all, Goodpack has identified autoparts transportation as a major growth driver going forward. This single market alone is estimated to be three times larger than natural and synthetic rubber combined. Assuming Goodpack is able to make a strong entry into autoparts transportation, Mr Liew will be in charge of, potentially, the largest market segment for Goodpack. We think it will be appropriate for him to helm the group. In addition, Mr Liew has been with Goodpack for over 16 years and has gained a deep understanding of the internal processes of the group's various departments. Our checks with management suggest that there will be no major changes in strategy. The new management will focus on implementing six-sigma throughout the organisation to facilitate processes and improve efficiency.

We deem this development as a non-event. It should not have a major impact on Goodpack's share price. Maintain Neutral.
NEUTRAL

Goodpack Ltd

OCBC on 14 Aug 2012

Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m on the back of higher demand from the Synthetic Rubber segment while PATMI climbed higher by 4.6% YoY to US$45.2m. Its results were in line with our projections, coming in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively). Entering FY13, we forecast a 10% increase in revenue on the back of sustained growth in the Synthetic Rubber segment as well as increasing penetration in the automotive space. While margin pressures from higher logistic costs and IBC leasing charges will remain, we still anticipate overall bottom-line growth for the company. Rolling our projections forward to FY13/14, our fair value estimate rises from S$1.70 to S$1.85. Maintain HOLD.

FY12 results in line
Goodpack’s FY12 results saw an overall 11.7% YoY growth in revenue to US$177.2m while PATMI climbed higher by 4.6% YoY to US$45.2m, which came in within 2.5% and 2.4% of our top and bottom-line forecasts respectively. Strong growth from the Synthetic Rubber segment – 11% YoY to US$94.7 – boosted its top-line while cost saving initiatives via headcount reductions in its sales division helped to cushion the corresponding increases in logistic and handling costs. To round off a stellar year, management declared a final dividend of 2 S cents and a special cash dividend of 3 S cents (FY11: final and special cash dividend of 2 S cents and 1 S cent respectively).

Strong growth to continue
Entering FY13, management expects revenue growth to persist on its strong growth tract on the back of increasing market share in the Synthetic Rubber (SR) segment and the procurement of additional contracts in the automotive space. With the opening of more SR plants in Singapore (two by the end of the year) and given general stability in the automotive industry, we deem a 10% increase in revenue for FY13/14 to be reasonable and raise our projections accordingly (previously 8%).

Although margins may remain depressed
While Goodpack’s cost savings initiatives had yielded some improvements, its logistic and handling costs remained higher on a YoY basis (+14% YoY to US$68.4m). Coupled with the increase in IBC leasing expenses, operating and EBITDA margins came in lower by 1 ppt and 2.2ppt respectively to 33.8% and 43% respectively. With a significant pickup in IBC demand likely to come in 2H13, we could see operating and EBITDA margins remaining depressed on the back of higher leasing costs. Furthermore, any moves by Goodpack to switch to a more cost efficient global logistic handler will take time to assimilate and adjust and cost savings may not be apparent in the near-term. Nonetheless, our FY13 PATMI still calls for a 2.2% YoY increase.

Maintain HOLD at higher FV
As we roll forward our projections to FY13/14, our DCF-derived fair value increases to S$1.85 from S$1.70 previously. Maintain HOLD.

Goodpack Ltd

Kim Eng on 28 Aug 2012

In-line with expectations. As expected, revenue weakness, which was evident during the 3rd quarter continued into the 4th, summing up an unexciting set of FY12 results. There is, however a silver lining, with a total dividend of SGD 5 cents/ share declared (SGD 2 cents final, SGD 3 cents special). This is an increase from last year’s SGD 3 cents/ share.

A tale of two halves in FY12. For the first half, revenue grew 22% yoy. However, with the global uncertainty setting in, 2HJune FY12 revenue grew just 3% yoy. This resulted in a full-year growth of 12% yoy. Given its
business model, a lower utilization (56% for FY12) also has a negative impact on margins. As a result, FY12 net profit grew just 5% yoy to USD 45.2m. As of June, its IBC fleet stands at about 2.7m, implying an increase of about 200-250k, which is below its usual expansion rate.

Slowed by tyres. With 85% of its revenue coming from synthetic and natural rubber, Goodpack is invariably affected by the global economic slowdown, with factories in China and Europe slowing down production. Goodpack typically increases its fleet only with new contracts on hand, hence the lower expansion rate in the 2H.

Defensively positioned. We see Goodpack as being very defensively positioned at the moment, with net gearing going down to just 0.1%. With continued strong free-cash flow from its business, it should be in a healthy net cash position for next year and able to start building out its fleet organically again. With several new synthetic rubber factories to be completed in Asia over the next two years, (7 in Singapore alone), management remains bullish about prospects in FY13. Other initiatives include building out its own cleaning depots, which may help reduce cost in the longer-run.

Earnings usually come back stronger. Possible share price weakness is a good opportunity to accumulate for the longer-term. FY09 was the previous instance of earnings weakness, which subsequently grew almost 30% CAGR over the next two years. Key catalyst remains traction on the auto-sector front. We understand a few auto-contracts are at the requestfor- quotation stage while the GM contract is in the midst of expansion. We trim our FY13-FY14F by 6-11% and introduce FY15 estimates. Maintain BUY with a TP of SGD2.07, now pegged to 17.5x PER (5-year average).

Goodpack

DBS on 11 June 2012

CLIENT queries on possibility of takeover: A number of clients recently enquired whether Brambles, the world's leading provider of pallet and container pooling solutions, might be tempted to buy Goodpack.

While we are still sceptical of this, we investigate whether there are any synergies between both businesses.

Possible increase in asset turn: Goodpack's current asset turn at about 2.2 times is below that achieved by Brambles' comparable IBC (intermediate bulk containers) and container business of 4.5-6.1 times.

This difference may be due to Goodpack's more globally focused business (that is longer downtime as its IBCs have to be shifted across the globe) and exposure to the rubber industry.

However, if asset turns can be lifted to 2.8 times by cross selling with Brambles' customers, we estimate revenue upside of up to US$61 million per annum.

Transport savings: Based on historical results, Brambles' transport costs, as a percentage of revenue, stand at between 18 and 20 per cent; much lower than Goodpack's 28-29 per cent.

We envisage savings could be achieved if Goodpack were to take advantage of Brambles' existing logistics arrangements.

Maintain Buy: While we doubt Brambles would launch a takeover given its intention to pay down debt and there would be a question mark as to whether major shareholder David Lam would sell, our analysis, however, shows potential synergies between the two businesses and still untapped potential in Goodpack.

We thus recommend investors to BUY Goodpack ahead of delivery of this upside over the next three years (earnings CAGR of 17 per cent).

BUY

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.