Global IBC supply chain solutions provider. Goodpack Limited is principally engaged in the business of renting its multi-modal, returnable metal box system, known as Intermediate Bulk Container (IBC), used for the packaging, transporting and storage of cargoes. We believe Goodpack, as the world's largest provider of IBCs, 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 IBCs and market coverage also present a high barrier to entry for its competitors. The same could not be said on its smaller-sized competitors, which could only compete on a smaller scale or risk wastages in time and resources incurred when carrying empty boxes.

Growing preference towards IBC packaging. Prices for packaging material have also been on the rise over the past years, thus leading manufacturers to source for cheaper packaging alternatives to reduce their high operating expenses. This has inadvertently spurred demand for its lower-cost IBCs, which is expected to provide 20-40% savings over the traditional packaging methods. With the recent implementation of International Phytosanitary Measure (ISPM 15) regulation by the International Plant Protection Convention (IPPC), Goodpack is also poised to ride on the ongoing growing preferences by customers to switch from wood to IBC packaging.

Ongoing measures taken to improve yield and efficiency. Despite the strong prospects, Goodpack is never lax in improving its yield and operational efficiency. Internally, it continues to take initiatives to reduce its logistic and handling expenses. Since the setting up of in-house automated cleaning depots in the US and Europe during the last fiscal year, the group has seen improvements in lowering the average cleaning cost per IBC unit.

Initiate coverage with BUY rating. We like Goodpack for its strong earnings margin, market leadership and sturdy growth profile. While the group's business is inevitably being affected by the poor macroeconomic conditions, we expect the group to resume its positive growth in profitability in FY10-12, where the global economy is widely expected to improve and customers begin to take up more leases of Goodpack's IBCs. As such, we are initiating coverage on Goodpack with a BUY rating and S$1.14 fair value, based on a Discounted Cash Flow (FCFE) model. Our fair value implies a 13.1x FY09F EPS and 11.6x FY10F EPS; though it may appear high, we note that it is still significantly lower than the average PER of 19.9x seen during the 2003-04 SARS crisis.