Singapore | Containers & Packaging

Asia Pacific Equity Research

GOODPACK LIMITED | HOLD

HOLDXX
MARKET CAP: USD 942M

AVG DAILY TURNOVER: USD 0.7M

2 Apr 2014 Company Update

PROMISING BUT FAIRLY PRICED

HOLD after 15% gain Focus back on fundamentals Wide economic moat with upside risks

HOLD (downgrade)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast
Analysts Yap Kim Leng (Lead) +65 6531 9809 yapkimleng@ocbc-research.com Wong Teck Ching (Andy) +65 6531 9817 andywong@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$1,187 / USD942.0 S$0.8 / USD0.7 0.5 1.4025 - 2.3 54.4 560.1 SGX GPACK SP GPAK.SI G05 Materials Containers & Packaging Goodpack Holdings 30.5% 1m 15 12 3m 9 7 12m 16 17

S$2.17 S$0.05 S$2.12 5%

Return to fundamentals as speculation eases Goodpack recently announced that it has been approached by parties in connection with a possible transaction and discussions are ongoing. Brambles, which also offers intermediate bulk containers (IBC) leasing among other packaging solutions, subsequently said it approached Goodpack previously but is not currently in talks. Instead of betting on whether there will be further upside through share offer, we prefer to draw investors attention back to fundamentals. Competitive advantages and upside risks remain Goodpacks most compelling value propositions to its clients are its global presence and unique IBCs that yields ~20% cost savings over alternatives. On the other hand, there are barriers to entry in the forms of: 1) IBC design patent with 15 years remaining, 2) stickiness of existing clients, and 3) large capex spending of ~US$900m to match Goodpacks current fleet size. Hence, we believe Goodpacks business model is still sound and will continue to grow. We believe Goodpack is among the top choices for any new synthetic rubber (SR) plant given its ~30% market share and track record. For instance, Goodpack has the supplier for new SR plants in Singapore, including the latest Sumitomo Chemical plant opened in Mar-14. We think a major upside surprise is current trial-stage auto parts manufacturers switching over fully to IBCs before 2QFY15 as assumed. We note that this is the third year of engaging auto parts clients, a relatively mature stage of the sales process. We re-iterate that accelerated growth in auto parts segment would follow due to the network effect whereby others adjacent to clients in the supply chain will switch over to minimise logistics handling systems. Another upside surprise is higher-than-expected demand from rubber industry, from either existing accounts or new SR plants. HOLD after 15% return The share price has gained 15% since our BUY call on 5 Feb-14, briefly hitting an all-time high of S$2.28. We continue to like the company but are keeping our S$2.17 fair value estimate. Hence, we deem Goodpack fairly priced and change our call to a HOLD.
Key financial highlights Year ended 30 Jun (US$m) Revenue EBITDA EBIT PATMI Diluted EPS (US cents) Cons. EPS (US cents) Net profit margin (%) PER (x) ROE (%) EV/EBITDA (x) FY12 177.2 76.1 59.9 45.2 8.6 na 25.5 18.5 17.5 11.3 FY13 190.9 89.0 72.0 51.3 9.5 na 26.9 17.6 16.4 10.0 FY14F 209.9 94.6 75.7 53.8 9.6 10.3 25.6 17.5 15.0 10.3 FY15F 235.1 107.7 86.6 62.2 11.1 12.0 26.5 15.2 15.7 8.9

Relative total return Company (%) STI-adjusted (%) Price performance chart

Sources: Bloomberg, OIR estimates

Industry-relative metrics

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2013

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Company financial highlights

Income statement Year ended 30 Jun (US$m) Revenue EBITDA Depreciation & amortization EBIT Finance costs Associates and JVs Profit before tax Income tax expense Minority interests PATMI

FY12 177.2 76.1 -16.2 59.9 -5.7 0.0 54.2 -7.0 -2.0 45.2

FY13 190.9 89.0 -17.1 72.0 -12.1 0.0 59.9 -7.8 -0.8 51.3

FY14F 209.9 94.6 -18.9 75.7 -12.6 0.0 63.1 -8.4 -0.8 53.8

FY15F 235.1 107.7 -21.2 86.6 -14.1 0.0 72.5 -9.4 -0.9 62.2

Balance sheet As at 30 Jun (US$m) Bank and cash balances Other current assets Property, plant, and equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Minority interests Total equity and liabilities

FY12 165.2 87.0 272.2 531.6 202.8 28.5 245.5 283.0 3.2 531.6

FY13 228.9 99.4 367.0 702.0 297.8 40.1 353.5 346.1 2.4 702.0

FY14F 212.1 107.2 468.4 794.0 360.2 37.3 413.0 377.7 3.3 794.0

FY15F 240.1 105.5 497.6 849.3 372.8 39.1 427.5 417.7 4.1 849.3

Cash flow statement Year ended 30 Jun (US$m) Op profit before working cap. chg. Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year

FY12 73.2 -18.6 54.6 -26.6 0.6 -26.0 71.1 99.8 68.5 165.2

FY13 85.0 -16.6 68.4 -111.5 0.0 -111.5 107.1 64.0 165.2 228.9

FY14F 92.7 -29.7 63.0 -120.0 0.0 -120.0 40.1 -16.8 228.9 212.1

FY15F 105.7 -18.0 87.7 -50.0 0.0 -50.0 -9.6 28.1 212.1 240.1

Key rates & ratios Diluted EPS (US cents) NTA per share (US cents) EBIT margin (%) Net profit margin (%) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend yield (%) ROE (%) Net gearing (%) Sources: Company, OIR forecasts

FY12 8.6 55.4 33.8 25.5 18.5 3.0 11.3 2.4 17.5 13.3

FY13 9.5 60.6 37.7 26.9 17.6 2.8 10.0 2.4 16.4 19.9

FY14F 9.6 66.3 36.1 25.6 17.5 2.5 10.3 2.4 15.0 39.2

FY15F 11.1 73.5 36.8 26.5 15.2 2.3 8.9 2.4 15.7 31.8

Company financial highlights

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SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS: - OCBC Investment Researchs (OIR) technical comments and recommendations are short -term and trading oriented. - OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIRs BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.

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Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd Important disclosures