STI : 3,015.42
Price Target: 12-Month S$2.00
Resilient in downturns, leverage in up cycles
• Prudent business model and market share gain bolster Goodpack’s earnings during downturn.
• Benefits from recovery in US/Europe
• Growth from Synthetic Rubber; new autoparts contracts from OEM a strong re-rating catalyst
• Undervalued, trading at replacement cost. BUY, TP of S$2.00 offers total return of 24%.
Fundamentals intact; entering growth phase Resilient in the downturn. Goodpack has demonstrated much resilience in both earnings and share price performance. During GFC, Goodpack’s revenue for CY09 eased off by just 2.9% y-o-y, despite the c.9% drop in overall rubber tyre consumption volumes. This is attributable to its synthetic rubber (SR) market share gain and long term relationship with bluechip customers. During the CY10 recovery, Goodpack showcased its ability to fully capitilise on the upswing, as revenues grew by 28.4% – 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 less than 1x at 0.6-0.7x, which suggests that it is less volatile than market, partly because Goodpack’s shares are tightly held.
Back on growth track. 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 2-year CAGR of 17% in FY13-15F, driven by market share gain in SR segment and cost-saving initiatives. This is augmented by the recovery in US/Europe (45% of Goodpack’s revenue) and bottoming out of the rubber industry, which is expected to grow at 2-6% 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 c.90% of its debts are fixed rate.
Opportunistic buy, trading at replacement cost. Goodpack is trading at -1SD, 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 DCF-based S$2.00 TP translates to 15.4x FY14F PE and 2.3x P/BV, in line with historical mean. Goodpack also offers 3-4% dividend yields based on al 45% dividend payout ratio. Reiterate BUY on Goodpack with a potential total return of 24%.
Publish date: 05/09/13