Wednesday, June 2, 2010

Finding undervalued Singapore Stock: Goodpack

Goodpack is engaged in renting its multi-modal, returnable metal box system, known as Intermediate Bulk Container (IBC). IBCs are used for the packaging, transporting and storage of cargoes. Through a network of subsidiaries, the Company provides a range of supply chain services and technical support to its clients globally.

Listed on the Singapore Exchange in 2000, Goodpack has emerged as No. 1 in the world in its business of supplying and leasing IBC. IBCs are able to provide customers with 20-40% savings over traditional packaging methods and Goodpack could lease its IBCs at half the rate that its competitors sell their containers for one-time use. Today it owns 1.7 million containers while its nearest competitor has 60000 containers of a different design.

Goodpack has a wide economic moat. As the world's largest provider of IBCs, it has clear advantages over its peers. Firstly, it allows the group to achieve economies of scale and greater trade-lane matching opportunities. Secondly, the sheer size of its IBC and market coverage also present a high barrier to entry for its competitors.

Besides its current business in natural rubber, fruit juices and synthetic rubber, the company is also looking into other new products such as automotive parts, chemicals, LCD panels & rice. The market value for each of the new products is huge. Beside targeting new product, the company is also looking into expanding its foothold into new countries such as South Africa, Taiwan, Russia and the Middle East

After going through Goodpack's business model, let's walk through the financial of the company to arrive at the estimated intrinsic value:

1. Sales revenue had been increasing every year from 26.6 mil in year 2001 to 102.4 mil in year 2009. Net income as well as cash flow from operations had been increasing consistently from year 2001 to 2009
2. Goodpack has future growth drivers in place. It is penetrating its services to new market such as autoparts, a market that is 10x times larger than current market. There are progress though slow in penetrating new markets
3. The company also has low debt-to-equity ratio. It also has high ROE of 15% and ROA of 8%
4. Goodpack require low CAPEX to maintain current operations

I like Goodpack for its good financials and great growth as well as the business model. Based on the DCF method, the stock's intrinsic value is at $2.02 which represent a margin of safety of 28% from its current trading price

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