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.