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Company Background
 
Master-Pack Group Berhad (“MPG”) and its subsidiaries are primarily engaged in the business of
manufacturing corrugated cartons, wooden packaging and providing one-stop packaging solutions to its
customers. The Master-Pack Group of companies has over the last 28 years, made a name for itself as an
innovative niche market player in the packaging industry. The Group has three main subsidiaries namely
Master-Pack Sdn. Bhd., Master-Pack (Sarawak) Sdn. Bhd. and MasterPack Vietnam Co., Ltd. The
Malaysian packaging plants are located in Nibong Tebal and Sungai Baong, Penang in the northern region
of West Malaysia and Kuching, Sarawak in East Malaysia. In addition, it has an associated company,
Richmond Technology Sdn. Bhd. located in Kota Bahru, Kelantan the east coast of West Malaysia. These
Malaysian packaging plants are strategically located to service both east and west Malaysia markets.
There is a warehouse in Bayan Lepas, Penang for Just-in time delivery to customers as part of our Total
Packaging Solutions Services.
 
Corrugated cartons manufactured by the Company’s plants are fully recyclable products. Please refer to
the company website www.master.net.my to pre-view samples of the various models of corrugated
products manufactured by the company. The packaging is designed holistically with the product of MP
clients in mind in order to optimize overall environment performance; using clean production
technologies and best practices; optimizing raw materials and energy. The packaging that MP produce
would be designed to be effective, beneficial and safe for users and communities throughout its life cycle
and where possible, MP aim at reducing the weight and volume of the packaging itself. Services provided
to our current customers include one stop packaging solution, warehousing as well as Vendor Managed
Inventory.
(Source: 2019 Annual Report)
 
Financial Highlight
Mater-Pack registered a slight YoY (-1.78%) decline in the latest Q1 2020 report. The result actually
came to a big surprise to most of the investor as many were expecting a huge impact to the biz
operation due to the MCO lock down period.
 
 
In the latest Quarterly Report, the management explained that the Group was fortunate, both facilities
in Nibong Tebal and Kuching were allowed to operate during the MCO period albeit at 50% capacity
while the facility in Vietnam continued operating as usual.
 
Despite the revenue dropped around 20.3% if compare to the preceding Q4 2019 due the reduction of
orders affected by the MCO, the Group still managed to record a profit before taxation of RM3.4 million
which is only 2.78% QoQ dropped.
 
Under the prospect of FY2020, management highlighted a very interesting statement as follows:-
 
“The new trend that emerged during the last MASTER-PACK GROUP BERHAD (297020-W) for the first
quarter ended 31 March 2020 10 two months when Malaysia was under the MCO, saw the rise in food
deliveries and online shopping which translate into the needs for more packaging. The management will
also review its business processes and procedures, identify its strengths and weakness and business
strategies moving forward.
 
Another interesting statement in their latest 2019 Annual reports as follows:-
 
“Master-Pack is fortunate that as a player in the packaging industry with a wide range of customers
including the Food and Beverage and Medical Sectors which are essential if not critical for the normal
daily lives. For the year 2019 the supply of packaging materials to the Food and Beverage is about 10% of
total revenue while the solar industry took up 67%. With the disruption, we may see a shift in the
composition for 2020 to the Food & Beverage and Medical Sectors"
 
The above 2 statement clearly stated the confident of the management to ride on the opportunity in the
current challenging time. It is good to know that MP machinery is flexible in shifting the composition of
their product manufacturing. I also wonder whether MP do supply their corrugated box to the glove
sector which is now selling like hot cake. If yes, then it will be bonus to all shareholder.
In terms of the financial analysis, MP has registered a very strong earning and strong free cash flow in
FY18 and FY19. The company had tansformed from the net debt to a net cash company with 15.7M net
cash as of Q1 2020 or 13.7% of its current market cap of 2.10. The ROE increase from single digit to
double digit in 2019.
 
In 2019, the company registed a healthy free cash flow of 20.8M and in Q1 2020 alone, the company
already registered 10.4M or almost half of of the 2019 free cash flow.
 
 
If we based on the average FCF of 20M and assuming 0% growth going forward, the intrinsic value of the
share price using DCF method is 4.62. Anyway this is assuming that the company is able to maintain the
same average FCF year on year. If based on annualize EPS of its latest EPS which is 5.57 x 4 = 22.28
cents and with PE 10, the share price should be traded at 2.23 (exclude cash) or 2.53 (include cash). As I
always said PE is punter expectation, it may go higher depending on whether the company is part of the
current biz trend like glove sector.
 
With the increase of the free cash flow, the company also increase its dividend payout from 2 cents in
2019 to 4 cents in 2020 which is 100% increase.
 
 
Summary:
The key success factor of Master-Pack is depending on its flexibility to ride on the current trend of
opportunity in medical and e-commerce biz. On top of it, the solar panel biz is also a good potential post
covid 19 as you can see the increase of the share price of Solarvest Company.
 
There is also a bright potential of its operation in Vietnam due to its strategical partner with US as more
and more US biz will be looking into Vietnam for their supply chain after the US-China trade war started.
 
The global waste paper price index is still stay low YoY although there is a sligh increase recently.
Unfortuantely I do not have the local waste paper price which is the main material for MP.
 
 
Source : https://www.paperfiber.net/cgibin/
composite_prices.cgi?mod=waste_paper2&id=100011&num=4
 
 
Risk
- Sudden surge of the raw material
- Further lock down if there is a 2nd wave of Covid-19
- Alternative packaging available
 
 
DISCLAIMER. The research in this article was conducted independently. The views and opinions
expressed are solely personal analysis and opinion. The information and stock tips found on this report
were compiled by individuals not licensed in any jurisdiction whatsoever to analyse stock or give
investment advice. By reading this report, you hereby warrant and guarantee that you are personally
responsible for obtaining adequate investment advice (ie. from a trusted financial advisor) prior to
making any investment decision
 
https://klse.i3investor.com/blogs/JeffBKT/2020-06-12-story-h1508756258-Master_Pack_Riding_on_opportunity_in_the_challenging_time.jsp
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