Friday, July 5, 2013

Notes on GoodPack

Since I last looked at it, the profile of this company has changed a little.

Note their financial year ends June.

Cashflows

Having being leasing IBC's for the past few years, they have been able to generate free cashflows (yellow below):
But from this year onwards, Capex will rise as they go back to buying IBCs. As of 3Q 2013 (May), they have already spent 102m on PPE.  Both OCBC and DBS-Vickers predicted higher capex for 2013 and 2014.
:

Balance sheet

As of May 2013, total debt was USD 266m, offset by 176m of cash.  Although net debt is about the same as a few years ago, its now only 2X earnings.

Most of their debt is long term fixed rate (~ 4.7+ percent); Medium Term Notes:
  • Probably 25m short term bank loans
  • 100m MTN due July 2013.
  • 120m MTN due in 2016/17.
  • 30m MTN due 2023
  • 50m MTN due 2023 (issued end-Apr: not part of the 266m debt above)
Looks Like they will be taking on more debt in future.  Their medium term note program has increased from 300m to 600m, to be issued whenever they want.

Operating lease commitments as of Jun 2012 were 14m (vs 177m revenue, 47m profit, and 6m finance costs).  Few of these last longer than a year, but I think that they have to renew them, else risk their IBC suppliers becoming compeditors.

 

Cyclical

Would they be affected by a downturn/recession?  Probably.

From CIMB:  In 2008 and 2009: "there was a temporary dip in Goodpack’s earnings when its major clients (tyre producers) failed to fulfil their contractual obligations of moving promised rubber volumes. The sharp dip in tyre demand had caught many tyre producers by surprise with manufacturers like Michelin, Goodyear and Bridgestone suffering huge losses. With excess inventories of raw materials (rubber), Goodpack’s clients were unable to move their obligated rubber volumes. As an act of goodwill, Goodpack allowed its major clients to renege on their contracts temporarily, which hurt its bottom line. Goodpack was able to mitigate the pain by increasing its market share in the synthetic rubber transportation segment."   They do not see this occurring again.

On the positive side,  DBS Vickers predicted a bounce in tire demand (replacements) in Mar 2013, which they are still waiting for. Also due to 2 new Synthetic Rubber factories being built on Jurong Island, starting production in 2014.

Valuations

At 1.57 (SGD), trailing PE is 14.4.   Assuming 3c (SGD) earnings in 4th Quarter, forward PE is 13.  Not cheap, but not bad in an expensive market.

During the entire 2011, the stock dropped 40+% on fears of a slowdown, to a trough of 7.7 forward PE.  In 2009, the trough was a (trailing) PE of 7.2.

My guess is that from here, there's equal upside and downside: depending on if there is a slowdown/recession, or if the DBS's projected recovery occurs.

Support at around 1.30 (projected FY 2013 PE of 10.7), would probably buy there.

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