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 on-

going. 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

Goodpack’s 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 Goodpack’s current fleet size. Hence, we believe Goodpack’s

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.

PROMISING BUT FAIRLY PRICED HOLD after 15% gain

Focus back on fundamentals

Wide economic moat with upside risks

2 Apr 2014

Company Update

GOODPACK LIMITED | HOLD HOLDXX

Asia Pacific Equity Research

Singapore | Containers & Packaging

HOLD (downgrade) Fair value S$2.17

add: 12m dividend forecast S$0.05

versus: Current price

S$2.12

12m total return forecast

5%

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) S$1,187 /

USD942.0

Avg daily turnover (m) S$0.8 /

USD0.7

Avg daily vol. (m) 0.5

52-wk range (S$) 1.4025 - 2.3

Free float (%) 54.4

Shares o/s. (m) 560.1

Exchange SGX

BBRG ticker GPACK SP

Reuters ticker GPAK.SI

ISIN code G05

GICS Sector Materials

GICS Industry Containers & Packaging

Top shareholder Goodpack Holdings -

30.5%

Relative total return 1m 3m 12m

Company (%) 15 9 16

STI-adjusted (%) 12 7 17

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

Key financial highlights

Year ended 30 Jun (US$m) FY12 FY13 FY14F FY15F

Revenue 177.2 190.9 209.9 235.1

EBITDA 76.1 89.0 94.6 107.7

EBIT 59.9 72.0 75.7 86.6

PATMI 45.2 51.3 53.8 62.2

Diluted EPS (US cents) 8.6 9.5 9.6 11.1

Cons. EPS (US cents) na na 10.3 12.0

Net profit margin (%) 25.5 26.9 25.6 26.5

PER (x) 18.5 17.6 17.5 15.2

ROE (%) 17.5 16.4 15.0 15.7

EV/EBITDA (x) 11.3 10.0 10.3 8.9

Please refer to important disclosures at the back of this document. MCI (P) 004/06/2013

MARKET CAP: USD 942M AVG DAILY TURNOVER: USD 0.7M

OCBC Investment Research Singapore Equities

Company financial highlights

Company financial highlights

Income statement

Year ended 30 Jun (US$m) FY12 FY13 FY14F FY15F

Revenue 177.2 190.9 209.9 235.1

EBITDA 76.1 89.0 94.6 107.7

Depreciation & amortization -16.2 -17.1 -18.9 -21.2

EBIT 59.9 72.0 75.7 86.6

Finance costs -5.7 -12.1 -12.6 -14.1

Associates and JVs 0.0 0.0 0.0 0.0

Profit before tax 54.2 59.9 63.1 72.5

Income tax expense -7.0 -7.8 -8.4 -9.4

Minority interests -2.0 -0.8 -0.8 -0.9

PATMI 45.2 51.3 53.8 62.2

Balance sheet

As at 30 Jun (US$m) FY12 FY13 FY14F FY15F

Bank and cash balances 165.2 228.9 212.1 240.1

Other current assets 87.0 99.4 107.2 105.5

Property, plant, and equipment 272.2 367.0 468.4 497.6

Total assets 531.6 702.0 794.0 849.3

Debt 202.8 297.8 360.2 372.8

Current liabilities excluding debt 28.5 40.1 37.3 39.1

Total liabilities 245.5 353.5 413.0 427.5

Shareholders equity 283.0 346.1 377.7 417.7

Minority interests 3.2 2.4 3.3 4.1

Total equity and liabilities 531.6 702.0 794.0 849.3

Cash flow statement

Year ended 30 Jun (US$m) FY12 FY13 FY14F FY15F

Op profit before working cap. chg. 73.2 85.0 92.7 105.7

Working cap, taxes and int -18.6 -16.6 -29.7 -18.0

Net cash from operations 54.6 68.4 63.0 87.7

Purchase of PP&E -26.6 -111.5 -120.0 -50.0

Other investing flows 0.6 0.0 0.0 0.0

Investing cash flow -26.0 -111.5 -120.0 -50.0

Financing cash flow 71.1 107.1 40.1 -9.6

Net cash flow 99.8 64.0 -16.8 28.1

Cash at beginning of year 68.5 165.2 228.9 212.1

Cash at end of year 165.2 228.9 212.1 240.1

Key rates & ratios FY12 FY13 FY14F FY15F

Diluted EPS (US cents) 8.6 9.5 9.6 11.1

NTA per share (US cents) 55.4 60.6 66.3 73.5

EBIT margin (%) 33.8 37.7 36.1 36.8

Net profit margin (%) 25.5 26.9 25.6 26.5

PER (x) 18.5 17.6 17.5 15.2

Price/NTA (x) 3.0 2.8 2.5 2.3

EV/EBITDA (x) 11.3 10.0 10.3 8.9

Dividend yield (%) 2.4 2.4 2.4 2.4

ROE (%) 17.5 16.4 15.0 15.7

Net gearing (%) 13.3 19.9 39.2 31.8

Sources: Company, OIR forecasts

Important disclosures

OCBC Investment Research Singapore Equities

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

DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither given nor endorsed. RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading

oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment

horizon. - As a guide, OIR’s 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%. Co.Reg.no.: 198301152E

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