Adampak

[dydx]

I thought it would be useful for those vested or interested in Adampak to also take a look into Armstrong's recently released Q2/1H-FY11 results and to make a quick comparison between the 2.....
http://info.sgx.com/webcoranncatth.nsf/V...A00250EF8/$file/Q22011Results.pdf?openelement [Results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...A00250EF8/$file/PressRelease.pdf?openelement [Press release]

In Q2, Armstrong recorded a group revenue of $52.7m (-5% yoy) and a much lower PBT of only $3.5m (-50.5% yoy; vs. $9.2m in Q2-FY10). When compared with Adampak's Q2 performance - group revenue: USD15.51m (+1% yoy); PBT: USD2.53m (-11.4% yoy) - despite its larger size, Armstrong had done much worst in adjusting to the market challenges in Q2, including a sharp fall of the USD (vs. most Asian currencies) and the disruption of the business supply chain affected by the Japan earthquake. I guess this again shows the true strengths of Adampak's business structure and management competence.

Of course, between the 2, Adampak has always kept a much stronger B/S structure including a large nett cash reserve.

[Musicwhiz]

I thought it would be useful for those vested or interested in Adampak to also take a look into Armstrong's recently released Q2/1H-FY11 results and to make a quick comparison between the 2.....
http://info.sgx.com/webcoranncatth.nsf/V...A00250EF8/$file/Q22011Results.pdf?openelement [Results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...A00250EF8/$file/PressRelease.pdf?openelement [Press release]

In Q2, Armstrong recorded a group revenue of $52.7m (-5% yoy) and a much lower PBT of only $3.5m (-50.5% yoy; vs. $9.2m in Q2-FY10). When compared with Adampak's Q2 performance - group revenue: USD15.51m (+1% yoy); PBT: USD2.53m (-11.4% yoy) - despite its larger size, Armstrong had done much worst in adjusting to the market challenges in Q2, including a sharp fall of the USD (vs. most Asian currencies) and the disruption of the business supply chain affected by the Japan earthquake. I guess this again shows the true strengths of Adampak's business structure and management competence.

Of course, between the 2, Adampak has always kept a much stronger B/S structure including a large nett cash reserve.

Thanks dydx for the comparison. But just curious - why compare Adampak and Armstrong? I thought they were in rather different businesses and also have different business models? Thus, they may also face different competitive challenges and may therefore require different levels of working capital in order to operate efficiently.

Perhaps you could explain, please? Thanks!

[Some-one]

I would think that there is no good comparison with AdamPak. Armstrong main revenue is from his automotive division although they are doing HDD as well. AdamPak's main revenues comes from both sales of label and HDD.

[kazukirai]

Perhaps a look at their respective business profiles will help. I got this off their respective websites.

My view is that these two businesses, although not direct competitors, are alike in the sense that their fortunes are tied to the industries they serve since they produce components that contribute to the final product.

Armstrong's

Armstrong Industrial Corporation Limited is a leading foam and rubber components manufacturer specialising in Noise, Vibration and Heat Management for the automotive and electronics industries. Providing innovative solutions for dampening, insulation, sealing, cushioning and related applications. Armstrong produces high performance precision die-cut, rubber moulding, vacuum forming & heat press moulding, EPP moulding components required for the assembly of diverse end products of OEMs.

Adampak's

Adampak has grown to become one of South East Asia's leading converters, producing all types of high-end labels, nameplates and die-cut parts for the electronic, pharmaceutical, computers/peripherals, petroleum and consumer industries.

Btw, if we add Armstrong's Consumer Electronics and Data Storage divisions (which I think makes better comparison to Adampak's reliance on the electronics industry, which admittedly is higher), their revenue contributed is 58%.

But still, looking forward to Dydx's reply for clarity.

[dydx]

I think kazukirai is highly perceptive, and what he said is in line with my original thoughts. Just to add some additional points -

1. While Adampak and Armstrong produce different things, most of their products are parts that go into other final products manufactured/assembled by OEMs (or their appointed contract manufacturers), many of which are big MNCs with their own global supply-chains. These are demanding customers, sourcing for and buying parts based on high technical specifications, competitive pricing, delivery performance, customer service, etc.

2. Both Adampak and Armstrong operate light manufacturing processes, basically converting semi-finished materials (for Adampak: different facestocks coated with/without performance adhesives; for Armstrong: different types of foam and rubber materials) into useful parts, using semi-automatic machines and skilled labour. While the raw material cost content and investment cost of machines will defer according to the different types of final products and manufacturing processes, the main operating characteristics of the 2 should be quite similar - e.g. multiple-shift manufacturing operation, coupling with customers' global supply-chains including orders loading, delivery, credit period, etc.

3. Both Adampak and Armstrong have big exposures to the HDD, consumer electronics (IT/computer & related products, phones, audio/video, white/brown goods) industries or OEMs.

I think the above similarities would end with the main difference between the 2 - that is, on last count, while Adampak operates 7 plants in 5 countries in the region, Armstrong actually operates a total of 19 plants in 6 countries! I always have this question in my mind: How does Armstrong as a medium-size group manage and operate 19 small-to-medium size plants spread over 6 countries, and efficiently?

[mrEngineer]

i think it is not always required to compare apples to apples. It depends on what are you comparing about. If you are comparing about the Vitamin C levels of fruits, it may be alright to compare apple to oranges but defintely not apple with chickens.

[Contrarian]

From the last 2 qtr, it is correct to conclude Adampak business is better than Armstrong. From an investment angle, Armstrong is a tougher business. Although Armstrong mgt is excellent, their earnings also got hit very badly...

[dydx]

There are a lot of useful data and well-organized info on the historical trend and evolution of Adampak's business in the just released presentation slides used in a results briefing held today....
http://info.sgx.com/webcoranncatth.nsf/V...F000F2774/$file/AdampakLimited_ResultsBriefing2Q2011_17082011.pdf?openelement

To me, 2 words can be used to describe Adampak's business - Resilience, and Solid!

[freedom]

I see 2 major challenges Adampak is facing:

1. margin erosion. I believe lower gross margin is already reflected in recent results. probably weak USD contributes quite some. but still lower margin will pose great risk to Adampak due to its smaller revenue. If its gross margin reduces to around 20%, it probably would make very little profit or even loss.

2. lower revenue. Although people have different view about when HDD will be replaced, most people would agree that the demand for HDD probably will not increase significantly, but very likely decrease quite some. The demand for PC decreases and SSD is replacing HDD in portable devices. Cloud computing, centralized data center and virtualization will reduce the demand of HDD in the long term as well, as there will be less waste of storage. Also, as HDD technology improves, the storage size and the lifetime of HDD increases greatly, that is, less demand for HDD in term of quantity. The operating cost of Adampak probably will not drop significantly even the revenue drops. With current 30% gross margin, if revenue drops 30%, probably Adampak will make loss. coupled with margin erosion, it will happen even easier.

I believe for Adampak to continue making good profit, it need to have more revenue streams as well as less reliance on HDD.

[dydx]

Adampak will go 'XD' on 6Sep11 for the announced $0.01/share Interim dividend for FY11, which will be paid on 23Sep11. There has been quite persistent buying/accumulation since the release of the Q2 results on 11Aug11, and this has supported the share price (last done: $0.26) during a period of market weakness in the past weeks. And why not?

At $0.26, assuming Adampak keeps the same (as last FY10's) total dividend payout for FY11 at $0.03/share - i.e. an $0.01/share Interim, to be followed by a $0.02/share Final in May12 - we will get a dividend yield of 11.54%. That to me is very good cash return, bearing in mind Adampak's well-established business under the present proven management is fully capable to grow further and add more value over time.

I am looking forward to receive the coming $0.01/share Interim dividend and another Final dividend next May!