Downgrading to a HOLD. 3QJuneFY13 was another slow quarter, with revenue growth continuing to decelerate. FY13F is unlikely to show a significant earnings growth. While we still believe in the resilient nature of Goodpack’s business, the lack of clear catalysts over the next few quarters is likely to be a drag on stock price. We downgrade the stock to a HOLD.

3Q13 below expectations. Revenue growth for the quarter slowed to 3% yoy. Net profit declined 6% yoy. This was a continuation of the trend from last quarter, where the company saw slower business activities in existing segments. This was particularly so in Europe, which makes up more than 20% of Group revenue. Management shared that consumers are visibly delaying purchase of replacement tires, which results in slower turnover of its IBC boxes leased to tire manufacturers.

Cost savings coming through is a plus. 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 has been yielding savings this year. More aggressive tendering by shipping service providers, have also helped lower logistics cost for Goodpack. Logistics cost for the quarter is down 9% yoy and up just 2% yoy for 9M13.

Lack of progress at auto-sector. Despite the slower revenue growth, capex continues to increase substantially (USD103.4m for 9M13) and interest cost becomes higher (9M13 finance cost up 103% yoy). We think this will be a burden to bottom line, as 1) substantial progress on the autosector is unlikely to materialize over the next few quarters and 2) there was a delay in the ramp up of new synthetic rubber plants in Singapore.

Downgrade to HOLD. We adjust our earnings forecast downward by 1- 4% over FY13F-FY15F. With no earnings growth visibility nor clear catalyst in place at least over the next 1-3 quarters, the stock is likely to underperform. Our new TP of SGD1.75 is pegged to 17x FY13F, in-line with historical 5-year average (previously 20x FY13F).

Source: Maybank Kim Eng Research - 14 May 2013