Background: While it may be a bit simplistic to label Adampak as just a label manufacturer, it would not be far off. Of course, these labels are not the mailing labels one stick on envelopes but highly technical labels used in the electronics, pharmaceuticals, computers and peripherals, petroleum and consumer industries.
Key products: Adampak produces barcode labels, heat-resistant labels and medical labels, among others. Its advanced products include RFID labels for tracking and control, and security labels with optical technology used for counterfeit detection. It also supplies die-cut components such as adhesive-free zone seals for HDDs, dampers, insulators and bonding tapes.
Key ratios…
Price-to-earnings: 7.2x
Price-to-NTA: 1.6x
Dividend per share / yield: $0.03 / 10.3%
Return on equity: 16%
Net cash as % of market cap: 19%
Share price S$0.26
Issued shares (m) 263.6
Market cap (S$m) 67.2
Free float (%) 58.8
Recent fundraising activities Nil
Financial YE 31 December
Major shareholders Anthony Tay (32.2%), Ong Hock Leng (9.0%)
YTD change -24.6%
52-wk price range $0.245-0.36
Our view Highly dependent on electronics. HDD accounted for 56% of Adampak’s sales as at 2Q11, down 3% YoY. Another significant segment is telecom at 8% of sales (-31% YoY), while other electronics industries account for 36% of sales. In total, the electronics sector accounted for 87% of total sales (-1% YoY). Non-electronics businesses did better, contributing the remaining 13% and up 21% YoY. Labels accounted for 70% of group revenue while die-cut components accounted for 30%.
2Q11 down YoY but improved sequentially. Given the high exposure to electronics, the 2Q11 results reflected the common problems of most manufacturers, namely, weakening US$ and higher operating costs. Sequentially however, there was improvement across the board. HDD and telecom-related as well as non-electronics sales rose 7-8% QoQ. Gross margin also improved QoQ but was down by 2ppt to 31%.
Maintained a strong balance sheet. As Adampak is in a fairly mature industry, capex is not significant and free cash flow generation therefore remained strong. In the past five years, the company has paid out all of its earnings in dividends, and even during the recession years, dividend payout averaged about 60%. With an interim dividend of 1 cent per share (64% of 1H11 earnings), it looks set to continue a payout of at least 80-90% for the full year. As at June 2011, net cash accounted for 19% of market cap, in line with historical trends.
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