Supermax’s FY11 results were within expectations. Its
revenue was quite flattish q-o-q as the higher sales volume was offset by the
lower selling price of gloves. However, its net profit was lower q-o-q due to
the continuous stiff competition as well as lower contribution from its
associates. We are downgrading our FY12 earnings by 9% since latex price
continues to be high and we expect some negative impact on its demand growth as
well as a potential price war. Maintain Buy but with a lower fair value of
RM2.50.
Within expectations.
Supermax’s FY11 results were within consensus and our expectations, making up
95% and 100% of FY11 forecasts. Its 4QFY11 revenue of RM276.2m was quite
flattish q-o-q as the higher sales volume was offset by the lower selling price
of glove since latex price was lower in 4QFY11 versus 3QFY11 at RM7.25/kg versus
RM8.67/kg. However, the 4QFY11 net profit of RM28.2m was 8.9% lower q-o-q due
to the 70% cost pass following the continuous stiff competition as well as
lower contribution from its associates. Finally, on a YTD comparison, its FY11
revenue of RM1,026.9m was higher by 5.1% due to the higher selling price as a
result of higher latex price in FY11 versus FY10 at RM8.95 versus RM7.47 and
higher sales volume of gloves sold as a result of bigger capacity.
Nevertheless, its FY11 net profit of RM106.0m was again lower by 33.2% due
to margin erosion from strong
competition, lower associates contribution and investment bond written off.
Downgrading FY12
earnings by 9%. Earlier, we had
expected the latex price to stay within the RM7.00/kg range but unfortunately,
the price has shot past this level due to the news of hard rubber
floor price support by the Thai Government at RM11.84/kg (latex expected
to be about RM7.10/kg with the assumption of having 60% hard rubber content and
the balance 40% water). Latex price also rose driven somewhat by the rise in oil
price due to tensions in Iran, causing its direct substitute, nitrile latex, to
also be
on a rising trend since it is a
by-product of oil. Hence, we think this would negatively impact demand growth
going forward and may eventually lead to some price war to move out rubber
glove inventories.
Maintain Buy. Our
fair value for Supermax has been downgraded to RM2.50 (previously RM2.75) based
on existing PER of 13x FY12 EPS. We continue to like the company for its attractive
valuation as well as operating in a recession proof industry. Also, Supermax
has declared an interim dividend of 1.8sen.
Source: OSK188
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