PP 7767/09/2010(025354)

9 March 2010

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
V is it Note Company No: 233327 -M
MARKET DATELINE

9 March 2010

Box-Pak Share Price

Recom
:
:
RM1.60
Not-rated
Growth From Vietnam

Table 1 : Investment Statistics (Boxpak; Code: 6297) Bloomberg: BPAK MK

Turnover Net Profit EPS Chg PER P/BV Net gearing ROE Gross Div
FYE Dec
(RMm) (RMm) (sen) (%) (x) (x) (x) (%) Yld. (%)
2007 119.3 4.1 6.8 112.3 23.5 1.4 0.1 6.1 0.0
2008 158.6 6.5 10.9 60.7 14.7 1.3 0.3 9.2 3.1
2009^ 158.2 14.5 24.2 122.9 6.6 0.9 0.2 13.7 4.4
2010 217.1 17.6 29.4 21.5 5.4 0.7 0.1 14.3 5.5
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC ^ Consensus Based On IBES Estimates
^Core Net Profit

♦ We met up with Box-Pak’s management and we gathered the following key

Issued Capital (m shares) 60.0
takeaways from the meeting: Market Cap(RMm) 96.0
Daily Trading Vol (m shs)
♦ Vietnam its future growth driver. Box-Pak will unlikely be expanding its
52wk Price Range (RM)
0.05
0.75-1.83
Malaysia operations given its relatively mature carton market. Box-Pak’s
Major Shareholders: (%)
Vietnam operations provided growth for the company in the past four years, Kian Joo 54.8
growing by a CAGR (FY05-09) of 32.5% (vs. Malaysia of 5%). We understand PNB 17.3
that Box-Pak is one of Vietnam’s top 10 players in the carton industry. Given
the strong prospects in the Vietnam market i.e. 3x Malaysia’s population size,
high proportion of young adults (about 62%), increasing trade liberalisation FYE Dec FY10 FY11 FY12
and is currently in the early phase of industrialisation, we believe Box-Pak will EPS chg (%) - - -
be a key beneficiary. As it stands, Box-Pak will be expanding its Vietnam Var to C.EPS (%) - - -

operations by increasing its capacity by 2,000t/m in mid-2010 (to 6,000t/m)

PE Band Chart
and by another 2,000t/m (to 8,000t/m) in 2011.

♦ Core net profit >100% in FY09. Excluding a one-off EI on the currency PER = 12x
PER = 9x
exchange losses of RM2.1m incurred from the devaluation of VND, Box-Pak’s PER = 6x

core net profit would have increased by 123% yoy in FY09 (including EI:
+91% yoy), driven mainly by higher sales volumes (from capacity expansion
in 2Q08), higher economies of scale, better product mix as well as lower raw
material prices.

♦ Earnings prospects. Assuming Box-Pak expands its Vietnam plant from

4,000t/m to 6,000t/m by mid-10 and operating profit margin normalises at a Relative Performance To FBM KLCI
conservative 10% (when raw material prices climb up) vs. 12-13% in 3Q-
4Q09, we estimate FY10 net profit to be at RM17.6m, representing 21.5%
growth yoy. Beyond 2010, growth momentum would be spurred by full-year
FBM KLCI
impact from the higher capacity, additional capacity expansion as well as
greater economies of scale.
Box-Pak
♦ Risks. 1) Sharp spike in raw material prices; 2) Loss of orders from major
customers; 3) Poor selling prices due to adverse economic conditions and
competition; 4) Plant shutdown / Plant accidents; and 5) Further devaluation
of VND.

♦ Investment case. The stock is currently trading at FY12/09 PER of 6.6x and
FY12/10 PER of 5.4x, which is relatively low in comparison to its 3-year
average historical forward PER of 8x. We value Box-Pak at RM2.35/share
based on 8x FY12/10 EPS. This represents a potential upside of >50%. Based
on net dividend payout of 20%, the gross dividend yield would be
Hoe Lee Leng
approximately 5-6% for FY10. (603) 92802239
hoe.lee.leng@rhb.com.my
Please read important disclosures at the end of this report.

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 9 March 2010

♦ Background. Box-Pak is a 54.8% subsidiary of Kian Joo Can Factory, engaged in the manufacturing and
distribution of paper boxes, cartons, general paper and board printing. The company was listed on Bursa
Malaysia in Jun 1996 and has production facilities in Malaysia and Vietnam, with total capacity of 6,500 tonnes
per month (t/m). The company manufactures quality cartons mainly for MNCs in the F&B, consumer goods,
electronic and furniture industry. Generally, Box-Pak’s clients require quality cartons as they generally place
importance to their packaging due to branding image.

♦ Solid foundation in Malaysia. Box-Pak has been in operations in Malaysia for more than 30 years with total
capacity of 2,500t/m. Currently running close to full capacity, Box-Pak’s clients in Malaysia are mainly from the
F&B segment (>50%), while the remainder are from electrical and electronics, consumer goods etc.. While Box-
Pak highlighted that there has been some consolidation in the carton industry in the Malaysian market (after the
subprime mortgage crisis), management stated that currently, there is no intention to grow its Malaysia
operations by expanding or acquiring local competitors as the market is a relatively mature market with not
much room for growth. As such, Box-Pak’s focus will continue to be on its Vietnam operations. Vietnam’s topline
grew by a historical four-year (FY05-09) CAGR of 32.5% in comparison to Malaysia operations’ four-year
revenue CAGR of only 4.9%.

♦ Top 10 players in Vietnam. We understand that Box-Pak is one of Vietnam’s top 10 players in the carton
industry. Given Vietnam’s population size of 85m (3x size of Malaysia), a high proportion of young adults (about
62%) coupled with increasing trade liberalisation and being in an early phase of industrialisation (much like in
China’s early stages of development), we believe Box-Pak is directly poised to benefit from these strong growth
prospects. Currently, Box-Pak’s Vietnam operating revenue is 1.6x higher than Malaysia. It has total capacity of
4,000t/m (1.6x more than Malaysia) and is currently running at full utilisation. Box-Pak will be increasing
Vietnam’s capacity by 2,000t/m in mid-2010, bringing Vietnam’s total capacity to 6,000t/m (+50% yoy). If the
expansion plan progresses smoothly, management plans to increase the total capacity by an additional 2,000t/m
(to 8,000t/m) by 2011. In Vietnam, Box-Pak’s clients are mainly from the F&B segment (30-35%), consumer
goods, furniture etc.. Currently, demand for carton boxes remains strong in Vietnam, with growing demand
coming in from popular global sports brand companies and furniture industry.

♦ Core net profit >100% in FY09. Excluding a one-off EI on the currency exchange losses of RM2.1m incurred
from the devaluation of VND, Box-Pak’s core net profit would have increased by 123% yoy in FY09 (including EI:
+91% yoy). The better net profit yoy was driven mainly by higher sales volumes (from capacity expansion in
2Q08), higher economies of scale, better product mix as well as lower raw material prices.

Chart 1: Revenue vs. PBT and PAT

250 24
22

200 20
18
16
150
14
12
('m)

('m)

100 10
8
6
50
4
2
0 0
2004 2005 2006 2007 2008 2009 2010f
-2
-50 -4

Revenue (LHS) PBT (RHS) PAT (RHS)

Source: Company data

♦ Qoq review. In FY09, sequentially, the company grew its revenue on a qoq ranging from 10-35% driven mainly
by increasing demand from manufacturers due to a recovery from the subprime crisis. Meanwhile, operating
profit margin jumped from 8-9% in 1H09 to 12-13% in 2H09 (excl. the one-off EI from currency exchange
losses) due mainly to higher efficiencies, better product mix and lower raw material prices.

Page 2 of 5
 9 March 2010

Chart 2: Revenue v s. Operating Profit

60.0 14.0%

50.0 12.0%

10.0%
40.0
8.0%

RM'm

(%)
30.0
6.0%
20.0
4.0%

10.0 2.0%

0.0 0.0%
1Q2009 2Q2009 3Q2009 4Q2009

Revenue Op profit Op profit margin (%)

Source: Company data

♦ Earnings prospects. Assuming Box-Pak expands its Vietnam plant from 4,000t/m to 6,000t/m in mid-2010 and
operating profit margin to normalise at a conservative 10% (once raw material prices climb up) vs. 12-13% in
3Q-4Q09, we estimate FY10 net profit to be at RM17.6m, representing 21.5% growth yoy. Beyond 2010, growth
momentum would be spurred by full-year impact from the higher capacity as well as greater economies of scale.

♦ Rising raw materials a concern? We understand that whenever there is a paper price increase by more than
5%, Box-Pak will be able to renegotiate with its customers for price adjustments. Given that orders are generally
placed every 3 to 4 months, we believe that Box-Pak will be able to pass on any cost increases / savings to its
clients more efficiently.

♦ Net gearing stood at 0.17x. As at 31 Dec 09, Box-Pak’s net borrowings stood at RM17.6m, while its net
gearing ratio was at a comfortable 0.17x.

♦ Dividend payout. Given that Box-Pak has already incurred initial high set-up capex in Vietnam and coupled
with strong revenue drivers for that market, we expect Box-Pak to maintain its minimum 20% net dividend
payout. We believe that Box-Pak will not have any problem paying out at least 20% given its operating cash flow
of RM20-25m p.a. and capex of RM15-20m p.a. for the expansion of new lines.

RISKS

♦ Risks to our view. The risks include: 1) sharp spike in raw material prices; 2) loss of orders from major
customers; 3) poor selling prices due to adverse economic conditions and competition; 4) shutdown / plant
accidents; and 5) further devaluation of VND.

♦ Mitigating factors. Box-Pak is able to re-negotiate with its customers if paper prices increase by more than
5%. Furthermore, Box-Pak has moved most of the sourcing of its raw materials i.e. paper to Vietnam (from
Thailand) due to increasing paper mills in Vietnam. This means that the company will be able to naturally hedge
against any further VND devaluation.

VALUATIONS

♦ Undervalued gem? Box-Pak is currently trading at FY12/09 PER of 6.6x and FY12/10 PER of 5.4x, which is
relatively low in comparison to its 3-year average historical forward PER of 8x. We value Box-Pak at
RM2.35/share based on 8x FY12/10 EPS. This represents a potential upside of >50%. Based on net dividend
payout of 20%, the gross dividend yield would be approximately 5-6% for FY10.

Page 3 of 5
 9 March 2010

FYE Price Mkt FY08 FY09 EPS PER GDY

(RM) cap EPS EPS growth (x) (%)
(RMm) (sen) (sen) FY09 FY09 FY09
(%)
Box-Pak^ Dec 1.60 96.0 10.9 24.2 122.9 6.4 4.4
Golden Sept 1.56 88.0 18.7 20.8 8.0 7.4 4.5
Frontier
^ core net profit

Table 5. Earnings Forecasts

FYE Dec (RMm) FY07a FY8a FY09a FY10F

Turnover 119.3 158.6 158.2 217.1

Turnover growth (%) 20.8 32.9 -0.2 37.2

Gross Profit 12.7 20.4 30.1 41.2

EBITDA 8.4 15.4 20.8 26.9

EBITDA margin (%) 7.0 9.7 13.2 12.4

Depr&Amor -3.2 -3.9 -4.2 -4.5

Net Interest -1.4 -2.4 -1.6 -1.4
EI - - 2.1 0

Pretax Profit 4.2 7.1 17.1 21.0

Tax -0.2 -0.5 -2.6 -3.4
Net Profit 4.1 6.5 14.5 17.6

Source: Company data, RHBRI estimates

Chart 3: BoxPak Technical View Point

♦ BoxPak traded sideways between RM0.78 and
RM1.09 region after a successful technical rebound
launched from a low of MR0.40 in Oct 2008.

♦ As its momentum improved, it broke out from

RM1.09 in Jan 2010, and kicked off a steep rally
and hit a high of RM1.83, before settling down in a
consolidation phase.

♦ The stock recorded its first positive candle

yesterday in more than a week, as it rebounded
from the support level of RM1.53.

♦ Given the fresh recovery of the momentum

indicators, the stock is ready to launch further
technical rebound soon to challenge the resistance
at RM1.72, and to retest RM1.83 high if the follow-
through buying momentum is strong.

♦ More importantly, breaking off from RM1.72 could

indicate a chance for it to challenge a higher
resistance zone of RM2.00-RM2.65.

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 9 March 2010

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
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