Lim & Tan Securities recommends ‘buy’ on ADAMPAK after meeting CEO.
Excerpts from the report dated May 4:
We are recommending a BUY on Adampak after our meeting with the company’s CEO Mr Chua CS. The reasons are as follows:
- the company is one of only 2 players to supply high end adhesive labels and die-cut components to its major customers Seagate and Western Digital who together account for close to 60% of its sales;
- besides benefitting from Seagate and Western Digital’s robust growth this year on the back of the PC upcycle (Gartner is expecting the PC and HDD industry to grow 20% in 2010), Adampak is also expecting to gain market share from a privately-held local competitor (Zephyr) as they expand in China, Thailand, Philippines and Malaysia versus their competitor’s ability to only serve their customers in Singapore;
- they are also expecting to gain market share from their US-listed competitor Brady Corp due to their lower cost base, predominantly present in Asian markets such as Singapore, China, Thailand, Philippines and Malaysia;
- while its 50-60% exposure to the HDD giants are a positive this year given the 20% growth expected, management acknowledges the inherently volatile and cyclical nature of the HDD industry and are working on increasing exposure to the pharmaceutical, medical equipment and chemical industries which will help to counter the cyclical nature of the HDD industry. Contributions are expected to increase going forward;
- the company’s track record is robust with sales having grown consistently at an average of 22% a year from 2002-2008 and net profit 77% from 2002-2007. Even during the global financial crisis, the company was able to grow 2008 sales by 17% to US$55.56mln and registered only a marginal decline in 2009 of 2.6% to US$54.12mln while net profit in 2008 fell a marginal 5.5% to US$6.75mln and 3.7% in 2009 to US$6.49mln. This reflects its dominant market position, stringent cost controls as well as robust business model;
- despite slightly lower earnings in 2009, management raised its dividend payout by 50% and payout ratio from 40% to 61%, yielding 7.5% at its last traded price of 30 cents. This reflects management’s confidence of prospects as well as its robust financial position with a net cash position of US$10mln, representing 18% of its current market cap.
- currently only one local broking house covers the company, expecting 2010’s net profit to increase 27% to US$8.25mln, surpassing its 2007 record of US$7.14mln. In 2007, the stock had a record of 61 cents, giving it a peak PE of 14x then and average of 10-11x then.
- at today’s price of 30 cents, slightly under half its peak price, its PE is only 6.8x and this is despite management’s confidence of 2010’s bottom-line surpassing its 2007 peak. Its US-listed competitor Brady Corp is trading at about 20x 2010 PE.
DMG & Partners initiates coverage of SUPER COFFEEMIX with $1.10 target price
Analysts: Tan Han Meng, CFA, CPA, & Terence Wong, CFA
Super owns >10 brands.including Super, Owl and Café Nova, and offers 300+ products across 52 countries worldwide. Despite its resilience and high cash generative characteristics, current share price trades at early cycle valuation of 9x FY10EPE and offers a dividend yield of 4-5%. Initiate with BUY and TP of S$1.10, representing an upside potential of 35% over the next 12 months.
High cash generative characteristics. Super has emerged stronger from recent economic turmoil. Revenue and recurring net profit grew at an average of 8% and 22% per annum over 2007-09 respectively, on the back of strong contribution from its new ingredient sales division and margin expansion. Free cash flow generated in FY08 and FY09 were S$12m-S$60m (vs. recurring net profit of S$30m-S$38m) respectively.
Following the divestment of its non-core assets in 1Q10, Super is likely to have a current cash balance of around S$120m,representing 30% of its market capitalisation. We believe this will result in higher payouts or M&A in the near future.
Potential upside catalysts. Super will continue to benefit from the region’s GDP growth and the current low Robusta coffee prices, which suggest above historical average margins in FY10E. The counter has attracted attention from the investment community since the announcement of its TDR dual-listing plan. We expect share price to respond positively to quarterly earnings momentum, its dual-listing in Taiwan in 2H10 and potential M&A news flow.
Downside risks. Key risks include unexpected sharp increases in raw material prices, delay in listing plans and potential M&A overpayments.
Kim Eng Securities initiates coverage of SUPER COFFEEMIX with $1.33 target price
Trading at a sharp 40% discount to its peers, with scope for special dividends and M&A, the stock is an attractive bargain. We initiate coverage with BUY and a target price of $1.33.
Sweet deals aplenty
We initiate coverage on Super Coffeemix with a BUY rating and a SOTP‐based target price of $1.33. The stock is a bargain, given its superior growth momentum, prestigious branding and sharp 47% discount to peers. With high cash on hand, M&A or special dividends appear imminent.
Recent story: SUPER COFFEEMIX: Insights into branding leading instant coffee
