ADAMPAK (Lim&Tan)

S$0.245-ADAM.SI

􀁺 While the company’s 2Q 2011 profit was again negatively impacted by the weakness of the US$ and higher costs, the 16% yoy decline to US$1.96mln nevertheless represents a narrowing from 1Q 2011’s 35% yoy decline. Sequentially, net profit rose 33% while sales rose 7% to US$15.5mln.

􀁺 Despite 1H 2011’s profit being down 25% yoy to US$3.43mln, management kept their promise by maintaining interim dividend at 1 cents a share, raising their payout ratio from 40+% to 60+%. This is still within the company’s target payout ratio of between 40-80% range and is also made possible by their consistently strong free cash flows.

􀁺 This has been again demonstrated in 1H 2011 where the company generated US$5.6mln in operating cash flows, more than sufficient to cover capex of US$248,000 and dividend payment of US$4.3mln, adding another US$185,000 to their cash holdings of US$13mln. Last year was also similar where they generated strong operating cash flows of US$5.4mln, more than sufficient to cover capex of US$1.64mln and dividends of US$2.8mln.

􀁺 If the company can maintain last year’s final dividend of 2 cents a share early next year, its dividend yield would be an attractive 12.2% at its current share price of 24.5 cents.

􀁺 Due to the uncertainties brought about by the recent weakness in US and European markets, management said that they will continue to improve productivity and operational efficiencies to improve their bottom-line performance.

􀁺 With the stock price having retraced 21% since our last update in May 2011 and with its yield and valuations starting to look attractive again, we are upgrading to BUY.