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).