STI : 3,038.71
Price Target : 12-Month S$ 2.25
Decent 2Q but could be better
• 2Q14 net profit rose 12% y-o-y but slightly below on high employee benefit expenses
• Expect stronger 2H; new contracts for autoparts and SR rolling in
• Maintain BUY and S$2.25 TP
2Q could be better. 2Q14 (FYE Jun) results were slightly below due to higher than expected employee benefit expenses (+11% yo- y; +26% q-o-q). Revenue grew 10% y-o-y but was down 2% qo- q due to customers’ 2-week Christmas closure while ramp up of Singapore synthetic rubber (SR) plants to almost 100% was only effective in Dec. As a result, recurring net profit rose 12% y-o-y but was down 10.5% q-o-q.
Expect stronger 2H14. This brings 1H14 recurring net profit to S$26.4m, making up 45% of our FY14 estimate. We believe Goodpack remains on track to achieve our numbers. Sequential improvement is expected in 3Q with the stronger SR demand in Singapore and Russia as well as the absence of Christmas closure. Momentum should continue into the seasonally strongest 4Q on strong juice demand and potential commencement of the third SR plant in Singapore - Zeon Chemical’s 40k tpa S-SBR plant.
Fleet expansion on track. In 1H14, Goodpack added 150k IBCs, lifting its fleet size to 3m units. This is in line with our assumption of 250k/270k additional IBCs in FY14/15. In addition, it continues to buy back the leased IBCs (15% of fleet) from supplier CIMC.
New contracts rolling in. Goodpack continues to gain traction with tier 1 suppliers to OEMs with several contracts recently inked. It bagged a contract from a US-based autopart supplier, which was highlighted in our 1Q results note. After its successful penetration into the Russian SR market through the largest player, Sibur, Goodpack is in talks with the other two major players, one of which could lead to firm contract after trial runs.
A safer proxy to global recovery. Goodpack’s resilient business model and ability to capitalise during the upswing makes it a safer proxy to ride the global recovery. In addition, it offers 3-4% dividend yield. Maintain BUY and DCF-based TP of S$2.25 (WACC of 9.1% and terminal growth of 2%). This translates to 17x FY14F PE and 2.6x P/BV, in line with its 10-year historical mean.