Adampak

Kim Eng on 5 Apr 2012


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

Key products: Labels can be used to convey information about the product such as electrical hazard warnings, product information, regulatory markings and bar codes used for tracking and control. In addition, it supplies die cut components such as adhesive-free zone seals for HDDs, dampers, insulators and bonding tapes. Labels account for 70% of sales, while precision die cut components account for the other 30%.

Navis offers to take Adampak private. Private equity firm Navis Capital Partners has made a cash offer of S$0.42/share to privatise Adampak for S$110.7m. Navis’ offer values Adampak at 18x FY11 earnings and 2.7x NTA. Admittedly, FY11 was a poor year for Adampak, but even based on its record year in FY10, Navis would still be valuing the company at 10x earnings and 2x NTA. We reckon this is fair for a company of its small size (just $58-62m in revenue in the past two years) and the relative lack of trading liquidity.

Offer likely to go through. We note that five substantial shareholders representing 52.3% of outstanding shares (including the largest shareholder, Group CEO Anthony Tay, who owns 32.2% of the company) have given irrevocable undertakings to Navis, which means the deal is already unconditional. As there are no major institutional shareholders in the stock and given the attractive valuations offered, we think it is quite likely that retail investors will also sell their shares to Navis.

No reason to hang on. Adampak was primarily known as a dividend yield play. Even at $0.42, the 2011 dividend of $0.02/share would still yield almost 5%. However, recall we were disappointed that 2011 dividend was cut to $0.02 a share despite a big improvement in cashflow. Going forward, even if it does not succeed in privatizing Adampak, Navis has publicly stated that it still intends to push Adampak to rapidly expand its business, which would burn cashflow and certainly affect dividends. As such, we see no reason to hang on.