On 10 January 2008, Mainboard-listed China Flexible Packaging Holdings (CFP) marked another major milestone in its rich history. Along with 49 other China plays listed on the Singapore Exchange, CFP became a constituent of the FTSE ST China Index – one of 18 indices in the newly introduced FTSE ST Index Series.

“We are deeply honoured and delighted to have been selected as a component stock of the FTSE ST China Index,” Zeng Hanming, deputy chairman of CFP, told Shares Investment during an exclusive interview. Apart from the aforesaid China-themed index, CFP also qualified for the FTSE ST Small Cap Index, further enhancing the company’s reputation and credibility.

PACKAGING YOUR EVERY NEED

Listed in January 2004, CFP prides itself as a leading manufacturer in the production and sale of Biaxially Oriented Polypropylene (BOPP) film. For the uninitiated, BOPP film is a type of flexible packaging material that is widely utilised across various industry segments.

Equipped with three production lines in the Guangdong province, which have a combined output of approximately 56,000 tonnes per annum, CFP produces four different categories of BOPP film, namely high shrinkage film, low shrinkage film, synthetic paper and 5-layer BOPP film.

Those companies that use CFP’s packaging materials include prominent names in China’s F&B sector such as Hong Kong-listed Meng Niu, Want Want (formerly listed in Singapore), Yi Li and Wa Ha Ha. CFP also boasts of being one of the first domestic producers of high quality 5-layer BOPP film used in food packaging.

BACK ON TRACK

From FY03 to FY07, CFP’s top-and bottom-line grew at a compounded annual growth rate of 25.1% and 6.4% respectively. Although its earnings in FY05 slumped on the back of a steep decline in gross margin caused by surging oil prices, CFP has since managed to steer right back on track.

For the full year ended 31 October 2007, the company breached the Rmb1b turnover mark for the first time by registering a 12.6% increase to an all-time high of Rmb1,113.7m.

According to Zeng, this achievement was mainly attributable to the full-year contribution from the 5-layer BOPP film segment, whose revenue contribution inched up from FY06’s 12.1% to 20.1%. Notably, 5-layer BOPP film commands higher margins as compared to low and high shrinkage film.

CFP’s net profit, however, rose by a more humble 3.9% primarily due to the expiry of certain tax exemptions, which led to a higher effective tax rate of 23.2% as opposed to 18.8% in the previous corresponding period.

As at 31 October 2007, the company had a strong cash position of Rmb358.3m with zero borrowings.

PROMISING PLANS ON THE CARDS

During the interview, Zeng revealed that the main challenge facing CFP at the present moment is the escalating demand for BOPP film in China , which far outstrips the supply. As such, the company has plans to raise its production capacity by investing in at least one new BOPP line. “All of our production lines are currently operating close to 100% utilisation. Hence, the only way for us to grow is to boost our capacity,” commented Zeng.

In a bid to further improve its gross margin and mitigate the impact of rising oil prices, CFP is in the process of developing additional production capacity to process BOPP film into higher value metallised film. The company is also contemplating to set up an advanced R&D laboratory so as to diversify its product range and modify its existing products to broaden their usage.

Furthermore, CFP is looking at strengthening its distribution network through appointing additional authorised agents and distributors thereby increasing the companyʼs penetration into different geographical markets in the Middle Kingdom.

VICTIM OF NEGATIVE SENTIMENT

Like most of its Chinese counterparts on the local bourse, CFP has witnessed its share price embark on a downward spiral ever since the second half of last year – falling from a peak of $0.58 in July 2007 to a trough of $0.36 in February 2008.

Based on its current price of $0.375, CFP is trading at 4.6x FY07 P/E and 0.6x FY07 P/B. More importantly, the company is positioned at an enticing 42.8% discount to its net asset value per share of $0.656. Coupled with a respectable yield of 5.2%, CFP appears to be grossly undervalued. Nonetheless, fundamentals are more often than not being thrown out of the windows in uncertain and volatile times like these.

Meanwhile, all eyes would be on 13 March 2008, when CFP is scheduled to release its 1Q08 report card. Investors and shareholders alike would most probably have a clearer indication then of how the company is going to perform in FY08.