Goodpack Limited to reap incremental earnings from Lanxess plant

With another plant in the pipeline.

In a company update, OCBC Investment Research said that Goodpack Limited will likely benefit from incremental earnings from the newly opened Lanxess plant until the plant reaches a steady state of production. Further adding to its prospects is that another plant is in pipeline whose production may well begin as early as 2QFY14.

Here's more from OCBC:

Lanxess opens Butyl rubber plant in Singapore. Lanxess, the world’s biggest manufacturer of synthetic rubber (SR) – and a significant client of Goodpack’s – officially opened its new butyl rubber plant on Jurong Island yesterday. The facility is designed for a capacity of 100K metric tonnes/year, and is the company’s largest investment in five years. Lanxess had chosen Singapore due to its position as a key SR manufacturing site, and its proximity to the emerging Asian markets of China and India, where the company will be able to meet the rising demand for tyres.

Goodpack on track to benefit. Goodpack had already secured contracts with Lanxess back in 2QFY13 but there were originally concerns over a potential delay in production. However, with this official opening, and through enquires with Lanxess, we can expect production to commence in 1QFY14. With the additional intermediate bulk containers (IBCs) that it had rocured earlier, Goodpack will be able hit the ground running together with the plant.Furthermore, the plant will only reach full capacity utilization by 2015, so that means Goodpack will be able to enjoy incremental earnings until the plant reaches a steady state of production.

Another plant in the pipeline. Lanxess aside, Goodpack has another deal in the coming quarters with a SR plant by Asahi Kasei. Production at this plant (and use of its IBCs) should come in by 2QFY14, although we await official word on this development.

Recent share correction presents opportunity. Goodpack’s share price fell as much as 4.4% since our last update in the aftermath of its 3Q13 results release. That said, this price correction presents an opportunity for investors to gain exposure to an important player in the IBC market, and indirect beneficiary of the growing middle class in China and India. Upgrade Goodpack to BUY with an unchanged fair value estimate of
S$1.80.