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