Sharp price correction but no cause for alarm bells. Since our last report issued on 14 Nov, the share price of Goodpack Limited fell by almost 21% to its lowest level since Feb last year. Although the weak macro-economic conditions, broad market sell-offs and reduction in holdings of a major shareholder have mainly contributed to this drastic slide, we deem any further selling of the share to be unwarranted.
One-in one-out. On 1 Dec, Amundi Group reduced its holdings from 5.36% to 4.94% (approximate reduction of 2.05m shares). Although the move would suggest a dip in confidence over Goodpack's prospects, it is probably in response to recent struggles by the Amundi itself. Amundi had suffered from declining operating profits over the past two quarters despite the implementation of cost cutting measures, and speculation over possible job cuts have also emerged recently. Furthermore, another investor group, Universities Superannuation Scheme Ltd, took advantage of the price correction to increase their holdings from 4.97% to 5.19%, making them one of the top holders of the stock.
Business as usual; FY12 forecasts unchanged. In an update from the company, we note that their main revenue segment, the natural and synthetic rubber business, remains as stable as before. Although demand for natural rubber has come off recently, a corresponding pick-up in demand from the synthetic rubber component pretty much leveled out any drop-offs. These segments together accounted for about 87% of their FY11 revenue and we expect FY12's revenue share to be similar. In terms of their automotive initiatives, the company has managed to procure its first account within that industry to utilize their services. While its revenue contribution is expected to be immaterial compared to the company's other revenue segments for FY12, it is a positive step in the right direction for the company. As such, we are leaving our FY12 forecasts unchanged.
Overdone price correction; upgrade to BUY. Goodpack's share price is now trading close to one standard deviation below its historical average. Barring any severe deterioration of global economic conditions, we expect this level to provide some support to Goodpack at least through to the end of the year. In addition, given the sharp price correction, the company will most likely initiate share buybacks that would provide further interim price support. Therefore, we upgrade our call to BUY at a fair value estimate of S$1.70 on valuation grounds.
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