More upside from synthetic rubber
▊ Despite 1Q being seasonally weaker than 4Q, Goodpack’s 1Q14 revenue rose 1.6% qoq due to strong demand from natural and synthetic rubber customers. It spent $32.6m in capex to buy new IBCs which typically means that the company has secured demand for new contracts ahead. 1QFY6/14 net profit formed 24% of our full-year forecast and was in line with our as well as consensus estimates. We leave our EPS forecasts unchanged but our target price rises to S$2.23 as we roll forward to FY15 earnings and raise our target P/E multiple from 13.5x to 15x (historical mean from 2007). We maintain our Outperform call and see catalysts from synthetic rubber and auto parts.
1QFY14 revenue grew 1.6% qoq on the back of strong demand in synthetic and natural rubber. Logistics cost, which contributes the majority of operating expenses, shrank 1.9% qoq. However, its net profit fell 14.7% qoq due to 1) higher depreciation charges as Goodpack acquired new IBCs during the quarter and 2) normalisation of forex gains from an inflated figure in 4QFY13. As a result, PBT margin and net margin fell to 30.8% (4QFY13: 35.4%) and 26.7% (4QFY13: 31.8%) respectively.
In the short term, we believe the key catalyst will come from synthetic rubber contracts, while the long-term catalyst would be securing a game-changing auto parts contract. Goodpack has aggressively acquired new IBCs since FY13 which usually means that the company has secured demand for new contracts ahead. We believe Goodpack can capture growth in the synthetic rubber market by penetrating new geographies such as Russia and Japan.
Although Goodpack’s share price has re-rated in recent weeks, we continue to like the stock given its earnings growth potential from the synthetic rubber and auto parts markets. We raise our target P/E multiple to 15x (historical mean) from 13.5x (0.5 s.d. below mean), as we believe a higher multiple is warranted given the strong earnings growth.
Publish date: 12/11/13