We are expecting a quarterly dip in 3Q09 net profit as synthetic rubber makers shut down their factories for 4-8 weeks between Feb and Mar 2009 for maintenance. Utilization rates of the boxes having hit a trough in the current quarter and customers are taking longer to return the boxes, resulting in average utilization of 175 days (billable days a year), a dip from 190 days in FY08.

However, earnings visibility should improve from Apr-09, as the factories re-open to meet a spike in demand resulting from low inventory levels at customers’ plants and the tomato juice segment goes through its peak season in 4Q09. Hence, the management expects 4Q09 show improvement and possibly be the best quarter in FY09F. FY09F net profit is now projected to grow at 3.4% to US$30.8m.

As indicated before, the company will not contract for the purchase of boxes after the 100,000 boxes are delivered by Dec-09. The fleet size shall remain at 2m, while GPACK continues to negotiate terms with the supplier for the leasing of boxes. The motivations for leasing are to lower financing and depreciation costs and to allow flexibility in resource allocation in view of uncertain demand.

The ongoing strategies to defend earnings include strengthening its foothold in the tomato paste; fruit juices and concentrates markets and making further inroads into the remaining 90% share of the SR market. Despite the difficult market condition, GPACK has managed to secure a new customer in Brazil in Jan-09 and is finalizing the terms of another new contract in Poland.

The management expects earnings growth of 5-10% in FY09. We have revised our FY09F revenue and earnings estimates up by about 2 and 8%. GPACK is currently trading at a forward PER of 6.4x, below the lower end of its 8-year PE band. Our target price is maintained at $1.04. Maintain Buy.