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Packages: Pulp prices hit all time high

Pulp prices for March are up by US$50/ton taking list prices back to all-time highs of US$840/ton in Europe, US$870/ton in North America and US$800/ton in Asia

 With ~30% of Packages’ RM cost accounted for by imported pulp, any short-term spike in paper pulp prices poses 1H10 margin risk for the company. The trade off for Packages (PKGS) will be between higher volumes and margins.
Packages has already raised output prices by 7-18% since Jan-10 and intends further hike of 3% to fully pass on the impact of rising pulp prices. We estimate negative EPS impact of as much as PRs0.45-0.48/sh (ex PRs-US$ depreciation) in case the company is unable to pass through rising costs.
We maintain our Neutral on Packages and believe 1H margins can surprise on the downside due to higher RM cost. The stock currently trades at 2010E PE of 10.9x.


March 18, 2010

KASB Securities and Economics Research

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