Goodpack (KimEng)

Event

FY11 results were slightly higher than expectations. Even amidst challenges with rising oil prices, forex losses and the Japanese nuclear disaster, Goodpack posted strong profit growth of 29%, proving that its long-term growth story remains very much intact. We believe the current market weakness may prove to be a good buying opportunity for this stock which surely has its best years ahead. Maintain BUY.

Our View

FY11 net profit was US$43.2m, driven by yoy revenue growth of 29%. Impressively, revenue from the synthetic rubber segment grew by a record 57% (for the first time this segment now accounts for more than 50% of revenue), as Goodpack grew its market share here from about 18% to 27%. This vindicates our earlier investment thesis that although Goodpack takes considerable time to enter new markets, the penetration rate accelerates once it gains a foothold.

Natural rubber segment also grew 21%, mainly due to demand recovery. Market share

here is now about 38%. Operating and net margins were maintained at 35% and 20% respectively. Profitability would have been higher if not for forex translation losses of US$2m.

Fleet size is now 2.5m (about 400k under lease). Trials with more than 20 auto-part makers are ongoing, although no concrete contracts have been signed. Though we expect some of these to sign up over the next twelve months, we only factor in major contribution by 2014F, becoming the next growth engine, after synthetic rubber.

Action & Recommendation

We factor in the likelihood of a mild economic slowdown and reduce our estimates by 3-4%, but still expect growth from synthetic rubber and further trade-lane matching. In fact, we believe auto-makers need to reduce cost in a recession will be favourable to Goodpack IBC’s value proposition. Maintain BUY with a TP of $2.18, pegged to 20X FY12F.