• New accounts/segments key for >10% growth
• Positive on auto parts makers’ adoption
• Europe and US recoveries’ impact limited

New accounts and segments are aces

Management has guided that new accounts and segments can drive topline growth into regions of above 10%. In FY14/15, Goodpack’s growth will be driven by new synthetic rubber (SR) accounts and its next growth level will come from gaining a foothold in the auto parts market. We believe there will be a network effect whereby other non-clients adjacent to clients in the supply chain will adopt Goodpack’s intermediate Bulk Containers (IBCs) so as to minimise the number of logistics handling systems involved. In our view, the securing of new accounts will then have the potential to create accelerated earnings in a few years’ time - a point which is likely overlooked by the market.

Limited measurable progress ≠ ground progress

Management has guided that sales cycle may take up to a few years, noting that the first SR contract took four years to begin running at full scale. Other than just negotiating lease terms, a sales cycle also involves working with 1) labour unions, 2) various players in the supply chain to ensure their logistics capabilities can handle IBCs from Goodpack’s clients and 3) technical checks on the auto parts’ intactness. We expect the earnings impact from this to kick in more prominently from 2QFY15 onwards due to the compelling cost savings of up to 20% for the auto parts manufacturers and Goodpack being an on-the-ground partner.

Europe and US recoveries are positives but limited

Europe’s and US’ turnaround stories have increasingly caught on, which are positives for Goodpack given its 45.3% Europe and North America exposure in FY13. However, with only somewhat positive forecasted GDP growths of 2.6% for US and 1.3% for Europe, these are just icings for Goodpack’s revenue growth ahead.

Upgrade to BUY

Due to a change in analyst and assumptions, the DCF-based fair value is raised to S$2.17 from S$1.87 with a BUY call.

Source: OCBC Research - 5 Feb 2014