Steady 1Q13 results. Our recent discussions with management suggest that business conditions remain difficult for Goodpack, as a result of an overall slowdown in activities in China as well as Europe. Nonetheless, we think the decent growth in the recent seasonally weaker 1Q13 results proves that Goodpack has a resilient business model.

Recurring net profit still grew 15%. Stripping out a USD0.6m gain from disposal of PPE in the corresponding period last year, recurring income still grew 15% to USD13m, despite a US1.5m swing in foreign exchange gain. This appears to be operating leverage from better trade lane matching, as revenue grew 11% against logistics costs of 6%.

Europe and China are slow. The former makes up about 20% of group revenue and is especially slow due to weaker demand for commercial vehicles. Over in China, overall manufacturing activities have slowed down, impacting demand for both synthetic rubber and natural rubber. In terms of product verticals, natural rubber has seen more slowdown due to the narrower application and Goodpack’s bigger market share. On the auto parts market, progress has been disappointingly slow, as customers are more pre-occupied with their slowing business.

Additional business from synthetic plants in Singapore. Management shared that two of the six new synthetic rubber plants in Singapore should come onstream in 3QFY13F. With a combined capacity of 150,000 tpa, we estimate this will be a requirement of about 30-50k new boxes. Out of the 6 plants, Goodpack has signed with 4 so far, which should again add on to this requirement. Goodpack’s IBC fleet is currently estimated at 2.8m and addition this year should be around 250k.

Earnings usually come back stronger. With the likely slower progression on the auto-front, we trim our FY14F-FY15F earnings by 5- 9% while keeping FY13F largely unchanged. This is still a resilient business which we think investors should hold over the longer-term. Keycatalyst still remains progress on the auto-parts vertical. On the other hand, slower demand and subsequently capex for new boxes may lead to dividend surprises, given its low-gearing of 15% currently. Maintain BUY with a TP of SGD2.25, now pegged to 20x PER.

Source: Maybank Kim Eng Research - 23 Nov 2012