Adampak

Kim Eng on 8 Mar 2012

Background: Adampak is a manufacturer of self-adhesive labels, seals for dampening and insulating, as well as other precision die cut components. It has production facilities in Singapore, the Philippines and Thailand. In addition, it has a manufacturing presence in Malaysia and China via its associate companies.

Key products: Labels can be used to convey product information, including electrical hazard warnings, regulatory markings and bar codes used for tracking and control. Adampak also supplies die cut components such as adhesive-free zone seals for hard disk drives (HDDs), dampers, insulators and bonding tapes. Labels account for 70% of its sales and precision die cut components, the other 30%.

Waterlogged final quarter. Adampak suffered a small after-tax loss of $0.2m in 4Q11, which included $2m in impairment charges for damaged fixed assets and inventory, as well as idle production costs. December-quarter revenue tumbled by 27% YoY as sales to the HDD and telecommunications segments were affected by the flooding in Thailand last year, resulting in full-year net profit plunging by 48%.

Expecting a tough 2012. Adampak expects the HDD industry in Thailand to return to its pre-flood capacity only in 2H12. Its own production in Thailand is expected to be restarted only in April. However, provisions made in 4Q11 for flood-related costs should be written back in 2012. While its factory in Thailand was damaged, insurance money is expected to fully cover the damage.

Consider cashing out. In our November 2011 note, we gave Adampak four out of five chillies when the stock was at $0.24. It has since climbed to a high of $0.34. Valuations currently are looking fairer. Even if earnings recover back to FY10 levels, the stock will still not be as cheap as before. We were slightly disappointed that Adampak paid one cent less in dividends for FY11, even though its cash flow improved significantly.